The market was higher for much of the session but turned sharply into negative territory after Trump's announcement on Twitter. The president said China has not lived up its promises to buy more US agricultural goods and to do more to hinder the sales of fentanyl, a synthetic opioid.
The announcement came a day after US and Chinese officials met in Shanghai for negotiations, but there were no signs of progress despite both sides saying the talks were constructive.
Eight of the 11 Standard & Poor's 500 sectors ended down, with four closing more than 1% lower.
Energy shares sank 2.3% as crude-oil futures plummeted. West Texas Intermediate fell almost 7.1% to $54.44 a barrel while international benchmark Brent ended almost 6.2% lower at $61.04.
Exxon Mobil (XOM) fell 2.6% while Chevron (CVX) slipped 1.9%. Concho Resources (CXO) fell more than 22%.
Blue-chips Goldman Sachs (GS) and JPMorgan Chase (JPM) dropped, pushing financials more than 2.3% lower. Goldman lost 3.9% while JPMorgan fell 2.6%. Prudential Financial (PRU) ended more than 10% lower.
Industrials fell 2%, weighed down by Caterpillar's (CAT) 3.7% slide and Boeing's (BA) 2% retreat. CSX (CSX) fell 3.7%.
Health-care shares edged up 0.1%. Nektar Therapeutics (NKTR) rose 9.6%, Vertex Pharmaceuticals (VRTX) added 7.6%, and McKesson (MCK) gained 6.7%.
In corporate news, Kellogg (K) popped 9.3% as the cereal maker's second-quarter results beat views. Yum Brands (YUM) ended 3.9% higher on better-than-expected quarterly results that were driven by comparable-sale gains.
In economic news, initial claims filed for unemployment benefits in the US posted a larger-than-expected increase last week but remained at a level seen as indicative of a healthy labor market.
The Dow Jones Industrial average ended nearly 1.1% lower while the S&P 500 lost 0.9%. The Nasdaq Composite ended almost 0.8% lower.
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