"Clearly the markets were blindsided and completely caught off guard", said Cliff Hodge, director of investments for Cornerstone Wealth.
The Dow Jones Industrial Average fell 315.97 points, or 1.26%, to 24,853.91, the S&P 500 lost 33.82 points, or 1.21%, to 2,755.04 and the Nasdaq Composite dropped 97.59 points, or 1.29%, to 7,470.12.
Utilities, which have lagged the market, fell only 1.2% in May, making them among the month's best performers.
The yield on Germany's 10-year government bond - regarded as one of the safest assets in the world - fell to a record low while U.S. Treasury yields slipped to 20-month lows. General Motors Co dropped 4.16% and Ford Motor Co 2.67%, pushing the consumer discretionary sector 1.43% lower. They are as common as copper and lead, and are vital to much of today's tech with uses in every segment from consumer electronics to national defense.
China responded by increasing tariffs five percent to 25% on 5,410 American products Saturday, worth $60 billion in trade. Citigroup fell 1.4% and Bank of America fell 1.2%.
Trump more than doubled punitive tariffs on $200 billion in Chinese goods to 25% and launched the process to hit almost all remaining imports from the Asian country. Many of them import vehicles from Mexico. Sales at established stores rose 3.5%, blowing away Wall Street forecasts of a 1.6% increase. It clearly shows that there is no victor in the trade battle.
"Obviously it's mostly aimed at Huawei suppliers, Intel, Qualcomm, ARM. if anything it's probably aimed at non-US companies, so European, South Korean and Japanese companies that may be trying to decide how strictly to apply the United States ruling", said Andrew Polk, an economist at Trivium China.
"It's potentially putting companies in a situation where they are forced to choose between the USA and China and that could definitely backfire on them", said Polk. An inversion in the yield curve is seen by some as an indicator that a recession is likely in one to two years.
Investors are also raising their bets that the Federal Reserve will need to cut interest rates later in 2019 to help the economy, less than a year after it had been raising rates to get them closer to normal.
"The fact that the president is willing to use tariffs as a weapon can really cause damage to business confidence", Hodge said.
Energy futures closed broadly lower Friday.
Wholesale gasoline slid 4.1% to $1.80 per gallon.
KEEPING SCORE: The S&P 500 index was down 1.2% as of 3:05 p.m. Natural gas gave up 3.7% to $2.45 per 1,000 cubic feet.
In commodity markets, spot gold firmed 0.7% to $1,297.3 per ounce.
The dollar fell to 108.41 Japanese yen from 109.55 yen on Thursday.