The announcement by Trump on Thursday that Washington would impose 10 percent in tariffs on another $300 billion in Chinese goods sparked a broad-based sell-off on Wall Street that followed the sun to trading in Asia and Europe on Friday.
The announcement means virtually all of the $660 billion in annual trade of goods between the world's two biggest economies will have tariffs on them, with the new duties set to take effect September 1.
The US decision came after trade negotiators held talks in Shanghai this week, the first face-to-face discussions since Trump and Chinese President Xi Jinping agreed to a truce in June, and Trump made clear that the tariffs could go lower or higher depending on what happens with the talks.
China warned Friday it would take "countermeasures" if the US followed through on its threat, with the commerce ministry calling the decision a "serious violation" of the June truce.
Negotiators are expected to reconvene in Washington in early September for another round of talks.
"Trump sent the market in a tailspin," said Alfonso Esparza, senior market analyst at online currency trading platform OANDA.
"So far, the US consumer has been spared from the tariffs on Chinese goods, but as Trump's threats grow in scope, so does the potential impact (as) higher costs will have to be passed down from American companies", he added.
While Wall Street's main indices ended the day with losses around one percent, both Hong Kong and Tokyo fell more than 2 percent.
Europe's main markets were down similar amounts in midday trade, with Frankfurt briefly tumbling 3 percent.
"The negative mood across markets suggests that investors are jittery over sizzling trade tensions between the world's two largest economies sabotaging the already fragile global growth outlook," said Lukman Otunuga, senior research analyst at FXTM.
Investors fleeing stocks sought to put it into safe-haven investments such as bonds, pushing the yield on German government 10-year bonds to a new record low of nearly -0.5 percent.
Yields on British government bonds also plunged despite Brexit risks.
Oil prices recovered some ground after suffering a rout Thursday as Trump's tariffs announcement fuelled concerns about lower demand, sending Brent plunging seven percent and WTI plummeting 7.9 percent, its worst decline in a session since February 2015.
- Trump 'not concerned' -
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On Thursday, Trump told reporters he was "not concerned... at all" by the negative reaction among investors, saying he had anticipated it.
The US president was disappointed with a quarter percentage point cut in interest rates by the US Federal Reserve on Wednesday, which declined to commit to making further cuts given the resilient performance of the US economy.
But with tariffs to hit many consumer goods, the impact of the trade war on the US economy is likely to intensify.
"If President Trump carries on like this he may well get his rate cuts, but at what cost?," questioned Michael Hewson, chief market analyst at CMC Markets UK.
He said a bigger interest rate cut was unlikely to outweigh higher tariffs.
- Key figures around 1000 GMT -
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London - FTSE 100: DOWN 1.9 percent at 7,442.96
Frankfurt - DAX 30: DOWN 2.6 percent at 11,930.43
Paris - CAC 40: UP DOWN 2.8 percent at 5,401.14
EURO STOXX 50: DOWN 2.5 percent at 3,403.22
Tokyo - Nikkei 225: DOWN 2.1 percent at 21,087.16 (close)
Hong Kong - Hang Seng: DOWN 2.4 percent at 26,918.58 (close)
Shanghai - Composite: DOWN 1.4 percent at 2,867.84 (close)
New York - Dow: DOWN 1.1 percent at 26,583.42 (close)
Pound/dollar: DOWN at $1.2128 from $1.2140 at 2100 GMT
Euro/dollar: UP at $1.1100 from $1.1090
Dollar/yen: DOWN at 106.88 yen from 107.40
Brent North Sea crude: UP $1.35 at $61.85 per barrel
West Texas Intermediate: UP $1.08 at $55.03 per barrel