"Markets start the week on a risk-off tone after President Trump threatened to impose tariffs on imported cars from Europe -- and he is now planning to curb Chinese investments in 'sensitive' US industries," said analyst Konstantinos Anthis at traders ADS Securities.
Trump shows no sign of backing down and threatened last week to impose a 20-percent tariff on cars imports from the European Union. That came just after the EU imposed levies on US products, including bourbon, jeans and motorcycles.
"The United States is insisting that all countries that have placed artificial trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the USA. Trade must be fair and no longer a one way street," Trump tweeted in defence of his protectionist trade policy which seeks to close trade gaps with other major powers.
- Risk-off -
Key European markets were up to 2.5 percent lower at the close, while on Wall Street the Dow fell 1.5 percent approaching midday in New York and the Nasdaq was over two percent weaker.
Charles Schwab analysts said "global trade tensions remain heightened, as China and the US have lobbed tariff actions at each other and the US proposed new tariffs on EU automakers last week".
Equities, which are widely regarded as a risky asset in times of economic uncertainty, had already suffered a pummelling last week in response to tit-for-tat warnings by Beijing and Washington.
That has fuelled concerns about the potential damage to the world economy from a full-blown global trade war.
"Downside risks to the economic outlook are rising, with escalating trade tensions currently at the forefront of investors' minds," wrote Citi analysts in a research note.
"The next few months will show if these tensions are likely to deteriorate towards full-scale trade war.
"Whether or not they do, the uncertainty is probably already damaging confidence and investment."
Those concerns were stoked Monday by reports that the Treasury Department is looking at an emergency law beefing up scrutiny of investment by Chinese firms in sensitive US industries.
Treasury Secretary Steven Mnuchin is expected to push the plan this week, Bloomberg News reported.
- OPEC output -
Oil prices meanwhile fell Monday after the Organization of Petroleum Exporting Countries (OPEC) cartel agreed Friday with non-OPEC members including Russia to lift crude output by one million barrels per day.
The OPEC news had catapulted the market higher Friday because of a lack of clarity over the production increase -- and concerns over spare capacity.
But prices handed back some of those gains on Monday.
"Saudi Arabian Energy Minister (Khalid) al-Falih talked of output by OPEC and the participating non-OPEC countries rising by a total of one million barrels per day in the second half of the year," said Commerzbank analysts.
"In our view, this should be sufficient to rebalance the oil market, so we expect the price to decrease to $70 per barrel in the third quarter."