Such drastic action would effectively shut down 10 per cent of transatlantic trade and lead to retaliation across the world, causing havoc for complex supply chains. It would revive fears of a tit-for-tat trade war between the world's two biggest blocs and bring the rally on equity markets to a halt. Counter sanctions Germany's WirtschaftsWoche reports that the EU has already drawn up plans for €20 billion ($31.6 billion) of counter-sanctions if need be, targeting Tesla, electric vehicles, and a spectrum of other products. Tariffs of 25 per cent would be a hammer blow for the British auto industry at a time when it is already grappling with Brexit. Britain is Europe's second biggest car exporter to the US by a wide margin.

Sales rose to 221,000 last year led by plants from Honda, Landrover, and BMW. The shipments were worth over $US8 billion ($11.2 billion) and accounted for 18 per cent of total UK car exports. It is a rare case where the UK enjoys a large trade surplus. It is not clear whether Britain would be exempted after a no-deal Brexit. Mr Reinsch, now at the Centre for Strategic and International Studies, said the White House aims to use the findings as a stick to beat to Europeans until they agree to "voluntary" quota limits along the lines of Reagan-era deal with Japan in the Eighties. It is not about tariffs, it is about leverage. William Reinsch The administration will take advantage of Europe's slide into industrial recession to ratchet up the pain. "If Trump thinks you are weak, he will push you," he said. A trade truce agreed by last July by Mr Trump and EU commission president Jean-Claude Juncker is unravelling. The EU thought it had secured a pledge for a free-trade pact with zero tariffs for most industrial products, locking in the EU's surplus in goods trade while excluding its protected farm sector.

This was too good to be true for the Europeans and has since been torn to shreds in US Congress. "I don't know how anybody in Europe that wants a free-trade agreement can expect it to get through the US Senate if you don't want to negotiate agriculture," said Senator Chuck Grassley, an Iowa farmer and chairman of the finance committee. Loading Marie Kasperek from the Atlantic Council said a looming European Parliament resolution could finish off any hopes of a bilateral trade deal. The text passed by the European Parliament's trade committee - and due to go to a full vote next week - lashes out at Mr Trump, denounces his Iran policy, and calls the current US steel tariffs a violation of WTO rules. The resolution said the EU should not enter talks "under threat". If the vote passes, the commission loses its democratic mandate for pursuing the deal. The message would in any case enrage Mr Trump. Mrs Kasperek said he would see it as a breach of the Juncker accord in July and feel entitled to let rip on car sanctions.

Critics says Mr Trump's use of a "Section 232" national security probe is an abuse of the WTO system. Mr Reinsch said the US trade chief Jim Lighthizer is sensitive to this and does not want second a battle front against Europe when the main focus is fighting predatory trade practices by China. "Trump has painted himself into a corner. There are going to be all kinds of lawsuits against this. If he imposes serious tariffs in an economic downturn, there will be a market sell-off," he said. No mercy for Mercs Unlike the case of steel tariffs, there is no vocal interest in the US actively pushing for car tariffs. US manufacturers are opposed. The trade unions are neutral. Consumer groups say it is madness. However, Mr Trump is convinced that 25 per cent tariffs on imported trucks have successfully shut foreign producers out of the US market. He may feel tempted to equal the ante for cars.

Barriers on this scale would pose a severe threat to the German car industry, a particular villain in the demonology of Mr Trump. He nevertheless owns a Mercedes SLR McLaren and a Mercedes Maybach. His daughter Ivanka drives a Mercedes Cabrio. Trump owns two Mercedes, but that won't stop him from imposing the draconian tariffs. Credit:Bloomberg The EU currently imposes 10 per cent duties on cars, compared to 2.5 per cent in the US. Germany does not benefit from this. The country would happily embrace free trade in cars but is constrained by the EU structure. Yet the White House trade guru Peter Navarro seems to have persuaded Mr Trump that Germany has gamed the global currency and trade system, using the disguised mechanism of the euro to pursue a mercantilist export strategy. Car plants are the backbone of German industry, employing 820,000 workers and generating €272 billion in exports. They arguably sustain a tenth of GDP in different ways. The industry holds 38 per cent of the entire world market share for premium vehicles.

Germany's IFO Institute said the double shock of US tariffs and a hard Brexit would cost the German car industry around €10 billion a year. The two together have a negative synergy since they limit the normal escape valve of trade diversion. This is not systemic in itself but is ominous for a sector already reeling from the diesel scandal and reliant on Asian batteries as it struggles to catch up lost ground on electric vehicles. "We are deeply concerned about the direction of US trade policy," said Klaus Braeunig from the German auto association (VDA). The Daily Telegraph, London