Traders work on the floor of the New York Stock Exchange.

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Stocks settled decidedly lower after a rapid decline on Friday following President Donald Trump's threat of higher tariffs on China, in which he accused the country of "becoming very hostile" with its restrictions on rare earth metals, a key resource for the tech and defense industries.

Stocks accelerated selling into the close, with the Dow Jones Industrial Average closing down 878.82 points, or 1.9%, at 45,479.60. The S&P 500 lost 2.71% to settle at 6,552.51, while the Nasdaq Composite fell 3.56% to 22,204.43. The broad-based index's decline was the largest since April 10. Prior to Trump's comments, stocks were sizably higher, with the Nasdaq hitting a new all-time intraday high.

"I was to meet President Xi in two weeks, at APEC, in South Korea, but now there seems to be no reason to do so," said Trump in a post on Truth Social. "One of the policies that we are calculating at this moment is a massive increase of tariffs on Chinese products coming into the United States of America."

Trump accused China of holding the globe "captive" using its rare earths metals resources. Earlier this week, China tightened their control on the market requiring foreign entities to get a license from Beijing to export anything that contains rare earths worth 0.1% or more of the value of the goods.

"Expectations for a China trade deal just got swept off the table," said Jeff Kilburg, founder of KKM Financial. "Profit takers are out in full force."

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Dow, intraday

Wall Street's fear gauge – the CBOE Volatility index – spiked above 22, ending about 4 months of a placid upward grind for the S&P 500 to record highs. The move signaled that traders were rushing to buy protection in the options market against an even bigger decline for the benchmark.

Shares of tech stocks with the most to lose from souring trade relations with China led the rapid sell-off Friday. Nvidia lost about 5%, while AMD dropped almost 8% and Tesla shed around 5%. Meanwhile, U.S. crude oil fell as investors grew increasingly concerned that higher tariffs might ultimately weigh on demand.

"It's not surprising to see technology related stocks down the most today as they have significant exposure to China in both manufacturing and as a large customer," Art Hogan, chief market strategist at B. Riley Wealth, told CNBC. "Clearly, our relationship with the second largest economy in the world just got more difficult," he said.

The setback with China came as the U.S. government shutdown dragged into its 10th day on Friday, adding to the bearish sentiment to close out the week. The Senate failed for a seventh time Thursday to pass dueling stop-gap funding proposals that would have put an end to the stoppage. At this point, there have been no signs that Republicans and Democrats have made meaningful progress on negotiations.

With the ongoing shutdown, layoffs of federal workers "have begun," Trump administration budget chief Russell Vought said in a social media post Friday.

Friday's declines wiped out the S&P 500's gain for the week, as the benchmark lost 2.4% for the period. The Nasdaq and the Dow also saw weekly losses of 2.5% and 2.7%, respectively.