In a stock market where investors are used to being disappointed, Tuesday's plunge still shocked.

China's benchmark equity gauge sank almost 5 per cent at one point and by the close, the escalating tensions with the US had sent 1,023 stocks down by the daily 10 per cent limit -- or more than one in four. Greasing the losses was the Shanghai Composite Index's slide below 3,000, a level previously breached during market crashes in 2015 and 2016.

China's sharemarket plunged on Tuesday. Credit:AP

With Washington and Beijing threatening tit-for-tat moves over import tariffs, investors are worried a trade war will act as a brake on China's economy and hollow out an already deflating equity market.

Selling intensified last week after data showed weak spots in China's economy. Rising corporate defaults and the government's financial deleveraging campaign are also undermining sentiment. But the death of buy-the-dip is all the more dramatic at a time when company profits are rising, a sign that investor pessimism may be snowballing beyond repair.