The Dow Jones Industrial Average decreased 767.27 points, or 2.90 per cent, to 25,717.74. The S&P 500 fell 87.31 points, or 2.98 per cent, to 2,844.74. The Nasdaq Composite Index was down 278.03 points, or 3.47 per cent, to 7,726.04, Xinhua reported.
All 11 primary S&P 500 sectors dropped, with technology and communication services sectors leading the decliners. All Dow components companies traded at red territory with Apple erasing 5.23 per cent and leading the laggards.
The Cboe Volatility Index, widely considered to be the best fear gauge in the market, jumped nearly 40 per cent to 24.59.
The market sell-off was triggered by participants' fear the trade tensions between the US and China could further escalate.
Trump tweeted last week that he would place an additional 10 per cent tariff on the remaining $300 billion worth of Chinese imports starting on September 1.
Several US industry associations have voiced their opposition to the White House plan to impose more tariffs, arguing that such action will not facilitate negotiation but only hurt Americans.
Analysts have said that since the new tariffs would target retail items, along with other consumer goods, the impact on the US economy will be more direct.
China's National Development and Reform Commission and the Ministry of Commerce said on Monday it would temporarily not rule out the possibility of levying additional tariffs on imported US farm produce with deals made after August 3, and related Chinese companies have halted purchases of US farm produce.
( With inputs from IANS )