The New Zealand market was also hit, with the NZX 50 closing down more than one per cent — down 1.24 per cent.
On currency markets, the Australian dollar was hit hardest, although the Kiwi dollar also dipped against the greenback. The yuan fell to a five-month low against the US dollar.
The Aussie dollar copped one of the bigger hits as currency traders assessed it to be at the greatest risk of economic fallout from a trade war.
"Simply put, it just has a larger percentage of exports that go to China," said Westpac senior market strategist Imre Speizer. "The Kiwi hasn't been too damaged by it," he said.
"[It] is under downward pressure but not as much as the Aussie."
Meanwhile the local share market had followed the US futures down, he said.
"The S&P 500 futures dropped about half a per cent on the news. The New Zealand equity market is pure follower of what goes on offshore."
The International Business Forum's Stephen Jacobi said the escalation of the tension was worrying for New Zealand in the medium to long term as it threatened to dampen global growth and undermine existing trade rules.
But short term he was optimistic that New Zealand would be clear of immediate fallout from new tariffs.
"There could actually be a bit of a lift for our exports to China, if the Chinese retaliate against the US on dairy beef, wine — these are all things we export to China and we could fill the gap," he said.
"I don't think we'll be caught out by anything in the United States — our export profile to the US is quite different."
Broadly the escalation of tariff rhetoric was very worrying Jacobi said.
But he still held out some hope that there might time before the July 6 "trigger date" for talks to continue and for a pull back from the brink.
