Trump's vow to impose a 10% tariff on another $300 billion of US imports from China is worrying investors that a severe economic slowdown could eat into demand for oil and other commodities. The escalation also raises the risk that China will retaliate by imposing tariffs on US oil.
Crude tumbled 8% to $53.95. That's the biggest single-day decline since February 2015. Oil was already in the red prior to Trump's tweet, which then accelerated those losses.
"This is heightening fear of a major slowdown," said Ryan Fitzmaurice, energy strategist at Rabobank.
US stocks and Treasury bond yields also fell sharply on the news, underscoring the worry on Wall Street.
Investors were already on high-alert for signs of weakness in the economy, especially after theFederal Reserve lowered interest rates this week for the first time in nearly 11 years.
"Prices were weak prior to the tweet. And then once it came out, it really snowballed," Fitzmaurice said.
Earlier on Thursday, the Institute for Supply Management said American manufacturing activity tumbled in July to the weakest level in nearly three years. Economists had anticipated a slight improvement in factory activity.
China, the world's No. 2 economy, has gone easy on US oil in the trade war by declining to impose tariffs on crude. However, that could change if the trade war deepens because Beijing has all but run out of US products to tariff.