About 10 minutes into trading, the Dow Jones Industrial Average was at 23,586.29, down 1.9 percent.
The broad-based S&P 500 dropped 1.3 percent to 2,579.46, while the tech-rich Nasdaq Composite Index shed 1.4 percent to 6,844.34.
China unveiled plans to hit major US exports such as soybeans, cars and small aircraft with retaliatory tariffs.
That came only hours after President Donald Trump's administration published its own $50 billion list of Chinese products facing US duties over Beijing's alleged theft of American intellectual property and technology.
The immediate drop in stocks suggests "the market doesn't like where things are heading," said Briefing.com analyst Patrick O'Hare.
"Market participants are bothered by the tone of these announcements and the realization that they are going to breed uncertainty that is apt to slow business investment and global economic activity as everyone waits to see if there is some real bite behind all of the barking and whether this devolves into a true trade war," he added.
Shares of companies heavily leveraged to China tumbled, including Boeing, down 3.4 percent, Caterpillar, down 3.5 percent, and agricultural machine maker Deere & Company, down 4.5 percent.
Worries about a trade war overshadowed strong employment data from payroll firm ADP, which said the US added 241,000 private-sector jobs last month, more than expected.
The data raised hopes for Friday's closely-watched jobs report from the Labor Department.