The S&P/ASX200 plummeted 135 points, or 1.8 per cent, to 7375 as the broader All Ordinaries lost 142.7 points, or 1.85 per cent of its $2.6 trillion market cap, to 7,561.7 points.
More than $170 billion in value has been wiped from Australia's top 500 stocks since US President Donald Trump announced his "Liberation Day" tariffs on April 2.
Roughly $US5.8 trillion ($A9.7 trillion) has been erased from Wall Street's S&P500 in the same time.
The tariffs kicked in at 2pm AEST on Wednesday, punctuated by the US imposing a 104 per cent total import duty on goods from China, in response to the Asian nation's 34 per cent retaliatory tariff on the US.
"We probably hoped that this day wouldn't come," IG Markets analyst Tony Sycamore told AAP.
"We've got those reciprocal tariffs have been activated on all countries but the big one, the one of most concern to the Australian economy is the 104 per cent tariff on China."
Asian stocks also suffered heavy losses, as Tokyo's Nikkei fell more than three per cent, South Korea's KOSPI index sank 1.7 per cent and Hong Kong's Hang Seng lost 0.4 per cent.
Ten of 11 local sectors were in the red by the close, led by a four per cent slide in energy stocks after oil prices tanked to four-year lows as crude demand expectations crumbled under the weight of the trade crisis.
Brent crude futures were trading just above $US61, sending Santos more than 5.6 per cent lower ahead of its annual general meeting on Thursday.
Materials also weighed heavily on the bourse, shedding 3.6 per cent as shrinking iron ore demand expectations crushed five per cent of Rio Tinto's market cap and BHP lost 3.5 per cent.
Financials finished 0.8 per cent lower after initially overcoming a morning sell-off, but only CBA closed higher, up 0.4 per cent, as ANZ sank 2.1 per cent, Westpac lost 1.7 per cent and NAB eased 0.7 per cent.
IG Markets' Mr Sycamore said the trade war escalation and apparent doggedness of the world's two largest economies was a major risk to markets and the broader economy, but there were still some defensive fiscal, monetary and market measures that could ease the blow.
"The RBA can cut rates, the Aussie dollar can fall and cushion the impact (of tariffs), crude oil is trading lower and we've also got the potential of fiscal stimulus from China," Mr Sycamore said.
The Australian dollar was trading slightly higher by 5pm to buy 59.97 US cents after briefly reclaiming the 60 US cent-level, but it was still down on Tuesday afternoon's 60.14 US cents.
The Aussie is trading at its lowest level since April 2020 in the aftermath of the COVID-19 global pandemic declaration.
ON THE ASX:
* The benchmark S&P/ASX200 index fell 135 points, or 1.8 per cent, to 7375 on Wednesday
* The broader All Ordinaries lost 142.7 points, or 1.85 per cent, to 7,561.7
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 59.96 US cents, from 60.59 US cents on Tuesday
* 86.79 Japanese yen, from 89.20 Japanese yen
* 54.14 euro cents, from 55.20 euro cents
* 46.71 British pence, from 47.41 British pence
* 107.96 NZ cents, from 107.98 NZ cents
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