The Russell 2000 index of smaller-company stocks dipped 29 points, or 1.9 percent, to 1,513.
The broad-based S&P 500 dropped 58.37 points (2.19 per cent) to 2,604.47, while the tech-rich Nasdaq Composite Index tumbled 161.44 points (2.28 per cent) to 6,915.11.
Trump late Thursday threatened to slap $100 billion more in tariffs on Chinese imports, while Beijing said it was fully prepared to respond with a "fierce counter strike".
Stocks were mostly unaffected by the March jobs report, which showed that the USA economy added 103,000 positions, down from a much bigger gain in February and well below what analysts were expecting.
Hedge fund manager Doug Kass, who runs Seabreeze Partners Management Inc, said he was shorting the Standard & Poor's 500."The hastily crafted policy like we have seen from Trump over the last two, three days and now tonight in a world that is flat and ever-more interconnected is unsafe".
On Wednesday, Trump's top economic adviser Larry Kudlow said the administration was involved in a "negotiation" with China rather than a trade war.
The trade war worries continued to pressure stocks even as Trump administration officials sought to dampen concerns.
Anxiety returned to Wall Street after three days of gains. Apple lost 2 percent and JPMorgan Chase gave up 2.9 percent.
Caterpillar, a construction equipment maker, shed $584, or 3.9 percent, to $142.29 while farm equipment company Deere sank $5.56, or 3.7 percent, to $145.79.
After a plunge Monday and a big bounce back Tuesday, followed by a steep loss that turned into a big gain Wednesday, the S&P 500 is now up 0.8 percent this week.
Health care companies also declined. It dropped 2.2 percent a day earlier.
The May crude contract was down 61 cents to $62.90 per barrel and the May natural gas contract was up four cents to $2.73 per mmBTU. Silver edged up 1 cent to $16.36 an ounce.
U.S. Treasury prices are higher following the jobs report, with the benchmark 10-year yield up 3 bps to 2.80%.
The dollar fell to 106.86 yen from 107.12 yen.
Germany's DAX was down 0.5 percent while France's CAC-40 fell 0.3 percent lower.