By lunchtime on Thursday, the S&P/ASX200 was down 125.6 points, or 1.58 per cent 7,809.2, as the broader All Ordinaries gave up 129, or 1.59 per cent, to 8004.
The top-200 had plummeted more than two per cent in early trade.
Markets had expected a 15 per cent ceiling on US president Donald Trump's "Liberation Day" tariffs, which instead began with a 10 per cent minimum, a 34 per cent impost on China, 24 per cent for Japan and 20 per cent for the European Union.
Australian exports to the United States will be taxed at the minimum 10 per cent rate, but the potential impact on the Asian region and global growth will have flow-on effects to the national economy, Zenith Investment Partners' Damien Hennessy said.
"Our own estimated probability of US recession has risen from 20 per cent to an upwardly revised 35 per cent, a level that cannot be ignored," Mr Hennessy said.
Asian stocks were suffering in early trade, with Japan's Nikkei share average tumbling more than 4.0 per cent to an eight-month low, South Korea's KOSPI index falling almost 3.0 per cent before recovering to a 1.6 per cent slip.
The tariff rates far exceeded baseline expectations and would dramatically increase US recession expectations if not renegotiated promptly, IG Markets analyst Tony Sycamore said.
"My guess is we will very shortly see Goldman Sachs revise higher their 12-month estimate of a recession in the US from 35 per cent to 50 per cent," Mr Sycamore said.
On the bright-side for borrowers, interest rate markets were now pricing in an 85 per cent chance of a 25 basis points rate cut at the Reserve Bank's May meeting.
"Inflation is rapidly becoming yesterdays problem," Mr Sycamore said.
"The RBA are expected to shift their attention to shoring up growth."
Ten of 11 local sectors were trading lower, with only consumer discretionary stocks up 0.5 per cent.
Energy stocks were down 2.2 per cent and oil prices tanked more than 3.5 per cent after the tariff announcement crushed crude demand expectations.
Financials were also taking a battering, down 1.7 per cent, with CBA paring early losses to shed 0.8 per cent, and the remaining three big banks all down more than 1.8 per cent.
Investment and financial services giant Macquarie had plummeted 3.4 per cent to $190.20 by 11am AEDT.
Materials were down 1.6 per cent, as iron ore giants fell under what tariffs could mean for China's growth and resultant demand for the steel ingredient, with BHP, Rio Tinto and Fortescue all down more than 2.5 per cent.
IT stocks bled 2.8 per cent lower, the worst performing sector, tracking with a more than four per cent bloodbath on Wall Street's tech-heavy Nasdaq index.
US markets are expected to fall when they open tonight, with S&P500 futures and Nasdaq futures sliding 1.6 per cent and 2.4 per cent as Trump delivered his tariff speech.
The Australian dollar is trading lower against the greenback, buying 62.72 US cents, down from 62.94 on Wednesday at 5pm, but recovering from a dip to 62.63 earlier on Thursday morning.
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