The tariffs will not go into effect immediately, leaving the door open for the two countries to negotiate.
"Today's overreaction follows China's list of 106 United States exports to be hit by tariffs".
Germany's DAX, the UK's FTSE-100 and France's CAC-40 all recovered ground later in the day from morning falls, although all remained in negative territory at the close.
"It is in nobody's best interest for the United States and China to engage in a trade war", said Sam Stovall, chief investment strategist at CFRA Research. The administration said it would hold a public hearing for USA businesses next month.
Ford, General Motors, Fiat Chrysler and Tesla fell between 0.8 percent and 1.88 percent.
The wider tech stock decline also came on reports that Apple meant to make more of its own parts, news that slammed European chipmakers such as AMS and STMicroelectronics.
U.S. oil futures dipped 1.2% to trade at $62.28 per barrel.
Tobacco stocks have also shown a strong move to the upside on the day, while gold stocks are pulling back along with the price of the precious metal.
U.S. Treasury prices are higher, pushing the benchmark 10-year yield down 2 bps to 2.76%.
Analysts are weighing whether the tit-for-tat moves signal that a full-blown trade war between the two countries has arrived.
But some traders said technical sellers could still put pressure on stocks on Wednesday as the S&P's closing level was still too close for comfort to 2590.76 - the 200-day moving average - and 2532.69 - its February 9 low.
"At this point it's all theater and posturing", he said of the threatened tariffs on both sides.
"The market seems to be taking on a split personality; down heavily one day only to rally firmly the next as investors seem intent on overreacting to bad news and good news in equal measure". CNNMoney's Fear & Greed Index flashed "extreme fear".
"It is still uncertain how this will play out", Julian Evans-Pritchard, an economist at Capital Economics, wrote in a research note Wednesday. "Equally likely, however, is that there will be some compromise that allows both sides to row back, or at the very least, water down the proposed tariffs", he said.
"The market is going through a self-righting process by working off the excesses of investor enthusiasm".
"Because recent lows in the market have held, people may feel a bit more comfortable buying the dip, even though nothing has changed or been resolved", he said.