The benchmark S&P/ASX200 index fell 47.6 points, or 0.58 per cent, to 8,198.1, while the broader All Ordinaries lost 57.9 points, or 0.68 per cent, to 8,420.9.
The United States' 25 per cent tariffs on top trading partners Canada and Mexico took effect just as Australian markets closed.
An additional 10 per cent impost on Chinese goods is also expected.
Fears of a global trade war are rising, with Canada promising to return the favour with 25 per cent tariffs on US goods and China announcing a 15 per cent tax on some US imports, including chicken and cotton.
Uncertainty in markets could persist for some time as investors awaited the outcomes of the confrontation, Pepperstone head of research Chris Weston said.
"These questions aren't something that necessarily is going to get solved overnight. In fact, they're actually building," Mr Weston told AAP.
"A lot of what we've been seeing has been a huge rotation into very old, defensive areas of the market, very predictable levels of cash flow out of risk areas of the market."
All but one of the ASX's 11 sectors finished in the red, with only health care stocks offering respite, edging 0.3 per cent higher as biotech giant CSL gained 1.0 per cent to fetch $264.71 per share.
Energy stocks led the losses, falling 3.2 per cent as OPEC+ confirmed an April production increase and US president Donald Trump announced the US would cut military aid to Ukraine, adding to tariff-induced concerns for global demand.
Santos was trading 4.7 per cent lower to $6.35 per share while Woodside fell 1.3 per cent to $24.48 per share.
Utilities stocks closed 2.3 per cent lower.
Mining giants BHP and Rio Tinto overcame a dip in iron ore futures to close 0.3 per cent and 0.2 per cent lower to $39.48 and $117.18 respectively
The big four banks were mixed, but CBA had edged 0.4 per cent higher to $157.76 per share by the end of trading, while financial stocks more broadly fell 0.5 per cent.
Looking ahead, Australian GDP figures are due on Wednesday, with economists forecasting an upgraded but still tepid growth rate of 0.6 per cent for the December quarter.
"This would be the strongest result in two years and would lift the year-on-year GDP growth rate from 1.0 per cent to around 1.3 per cent, above the Reserve Bank's forecast of 1.1 per cent," CommSec chief economist Ryan Felsman said.
The Reserve Bank of Australia also released minutes from its February meeting, when the board opted for its first cash rate cut in four years to 4.10 per cent.
The Australian dollar is weaker against the Greenback, down from 62.22 US cents on Monday afternoon to 61.97 US cents.
ON THE ASX:
* The benchmark S&P/ASX200 index on Monday fell 47.6 points, or 0.58 per cent, to 8,198.1.
* The broader All Ordinaries lost 57.9 points, or 0.68 per cent, to 8,420.9.
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 61.97 US cents, down from 62.22 US cents at 5pm AEDT on Monday
* 92.56 Japanese yen, from 93.60 yen
* 59.13 euro cents, from 59.71 euro cents
* 48.82 British pence, from 49.35 pence
* 110.58 NZ cents, from 111.01 NZ cents
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