The world is on the brink of the most dramatic trade confrontation of modern times after President Donald Trump openly threatened “trade wars” as a tool of US policy, prompting warnings of full retaliation by major powers across the world.

Stock markets plunged in Asia and Europe for a second day as international investors digested the ominous implications of sweeping US tariffs of 25pc on steel and 10pc on aluminium. The measures are viewed universally as an impetuous and unprovoked assault on the trade system, evoking memories of the Smoot-Hawley tariffs of 1930.

The International Monetary Fund warned on Friday that the tariffs on would likely cause economic damage to the United States and its trading partners.

"The import restrictions announced by the US President are likely to cause damage not only outside the US, but also to the US economy itself, including to its manufacturing and construction sectors, which are major users of aluminum and steel," the IMF said in a terse statement.

The shocking twist is that President Trump seemed to relish the chance for a dangerous showdown, tweeting on Friday that “trade wars are good, and easy to win”.

Countries that “get cute” and exploit the US market by running chronic trade surpluses may see their access cut off altogether. A view has taken hold in the White House that deficit countries suffer less than surplus states in a trade rupture, which neglects the risk that events can spiral out of control.