Both countries imposed new levies on September 1, with the US now assessing 15 percent tariffs on an assortment of consumer goods and China rebutting with its own duties.

In its first session since the tariffs took effect, the Dow Jones Industrial Average ended down 1.1 percent at 26,118.02.

The broad-based S&P 500 shed 0.7 percent, closing at 2,906.27, while the tech-rich Nasdaq Composite Index fell 1.1 percent to 7,874.16.

CFRA Research's Sam Stovall said hopes were dashed that the United States might delay as the tariffs as it has done at times in the past.

Stovall also pointed to hawkish commentary from US President Donald Trump against Beijing. On Twitter, the US president vowed China would face a "much tougher" deal if Trump is reelected in November 2020.

Investors "hoped there might be a postponement to allow the talks to go on," Stovall said. "But instead we heard an even greater threat towards China. That just caused investors to think, 'Oh boy, here we go again.'"

Tuesday's losses also followed a downcast report from the Institute for Supply Management, which said that US manufacturing activity fell into contraction in August for the first time in three years.

Though Trump has championed the US manufacturing sector, it is now the weakest part of the American economy, suffering repeat shocks from the US-China trade war, which has raised prices and eaten into demand, and from a weakening global economy.

The ISM report comes ahead of other key data later in the week, including the August jobs report, which will be released Friday.