In New York, the Dow Jones industrial average was down 125.26 points at 24,348.86.
Still, optimism about the United States economy gradually emerging from the lockdowns have put the major indices on course for weekly gains, with the S&P 500 set to add more than 2%.
The S&P 500 is down 275.33 points, or 8.5%.
Trade relations between US and China are also under scrutiny as President Donald Trump appears to be taking a more hardline stance against Beijing ahead of his re-election bid in November.
Beijing's move to take over long-stalled efforts to enact national security legislation in semi-autonomous Hong Kong spooked investors in Asian markets who have endured months of pro-democracy demonstrations a year ago that at times descended into violence between police and protesters. Technology shares helped the Nasdaq Composite outperform, while Caterpillar and Johnson & Johnson weighed on the Dow Jones Industrial Average.
Enthusiasm over a coronavirus vaccine and the economy reopening was kept in check Friday, however, as tensions between China and the USA rose.
Late in the session, stocks edged lower after the U.S. Commerce Department said it was adding 33 Chinese companies and other institutions to an economic blacklist for human rights violations and to address U.S. national security concerns. Whether it is an ember or a flame, we are going to put it out.
Gold prices gained $5.90 to $1,727.80.
Energy was the big loser on the day, falling 1.5 per cent on a lower crude oil price as Frontera Energy Corp. decreased 5.2 per cent.
Spot gold added 0.5% and US gold futures settled up 0.8% at $1,735.50 an ounce.
USA crude fell 67 cents to settle at $33.25 a barrel, paring about half earlier losses of more than 5%. The price has risen this month as oil producing nations cut back on output and the gradual reopening of economies around the globe have driven up demand. China also decided not to set a GDP target for 2020 as the coronavirus continues to inflict damage on the world's second-largest economy, following a bill the Senate passed earlier in the week that would potentially delist Chinese stocks from US exchanges. Alberta's Western Canadian Select fell about two-and-a-half per cent to US$24.02 per barrel. "We've seen unprecedented support from policy makers and that's what's been driving the recent gains, and reopening of major economies". The S&P 500 has gained 3% this week while the NASDAQ Composite is up 3% in that time.
Brent crude, the global oil benchmark, fell 4.7% to $34.36 a barrel.
Adding tariffs on Chinese goods would hit U.S. consumers and "the market is skeptical Trump will risk that before November", said Gregori Volokhine of Meeschaert Financial Services.
The Canadian dollar was under pressure against its American counterpart, down almost half a cent to 71.22 cents U.S.