Donald Trump’s trade tariffs are driving up costs for US manufacturers and exacerbating a slowdown for eurozone factories, new figures showed on Monday, as the EU and the US edge closer towards a full-scale trade war with potentially damaging consequences for the global economy.

According to the latest survey of American factories by IHS Markit – closely watched for any early warning signals for the world’s largest economy – the president’s tariffs added to the cost of raw materials and components in June. It also contributed to the lengthiest delays for supplies reaching factory production lines since the poll was started in 2007.

Against the backdrop of an increasingly bitter dispute between the EU and the US, a parallel survey of eurozone manufacturers found economic activity dropped to the lowest level for 18 months in June, with the worst of the slowdown coming in Germany, France and Greece.

Tariff fears drag markets down as EU and Trump trade blows – business live Read more

The snapshot for the 19-nation bloc extended a period of slower growth for factories under way across the euro area since the start of this year. The survey also pointed towards tougher conditions ahead as Brussels and Washington exchange threats over import tariffs.

The European commission, the EU’s executive arm, warned the White House on Monday it would be prepared to use tariffs against as much as $300bn (£228bn) of US products should Donald Trump slap higher taxes on European automotive imports to America. The president had threatened last month to impose tariffs of 20% on imports of cars from the EU after Brussels carried through plans to tax American consumer goods – such as whiskey, cigars and Harley-Davidson motorcycles – in retaliation against US tariffs on European steel and aluminium.

The latest exchange in the trade standoff, alongside a trade dispute between the US and China, rocked financial markets on Monday as traders bet the conflict could escalate further, with the FTSE 100 closing down by 89 points, or 1.2%, and the pan-European Stoxx 600 list of the continent’s leading shares declining 0.8%. Wall Street also fell in early trading on Monday, with the Dow Jones index falling 0.6%.



Wilbur Ross, the US commerce secretary, said on Monday afternoon the turbulence would not deter Trump from shaking up the global trade system. “All these claims that the sky is falling are at least premature and probably inaccurate,” he said in an interview with the CNBC news channel.

The readings from the IHS Markit surveys suggest Trump’s tariffs could push up the cost of goods for American consumers and buyers of goods made in the US. Survey respondents widely said higher input costs were partly passed on to clients.

Factories in the eurozone bounced back from the sovereign debt crisis to record the strongest growth in a decade towards the end of last year, although activity has since come off the boil. British manufacturers, which have significant trading links to the continent, have suffered as a consequence.



Lee Hopley, the chief economist at the EEF manufacturers’ organisation, said: “With the rest of the EU being a dominant source of growth over the past year, this slowdown, in part driven by fears about global trade tensions, could be a further signal of more weakness to come.”



IHS Markit said manufacturing output in the UK remained subdued in June, with factories increasingly reliant on backlogs of work rather than new orders. The threat of trade tariffs for Britain is compounded by political uncertainty over Brexit, while there are still lingering effects from higher UK inflation triggered by the EU referendum two years ago.

Exporters on the continent are becoming increasingly worried about the potential impact of tariffs and other trade restrictions.

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The reading on the IHS Markit purchasing managers’ index for the eurozone dropped to 54.9 in June from a reading of 55.5 in May, on a scale where anything above 50 points towards growth.



Chris Williamson, the chief business economist at IHS Markit, said political uncertainty was also having an impact on Italian factory output, although he added the biggest concern was cooling growth across the region and a potential trade war.



“[There are] mounting worries from companies relating to the impact of tariffs and trade wars, suggesting firms are bracing themselves for the potential for further export losses,” he said.

