The European Commission has warned that Donald Trump’s decision to extend his trade war to imported cars would have a “disastrous” economic impact and that the EU would retaliate.

The US earlier this year imposed levies of up to 25 per cent on US imports of European-made steel and aluminium and the US President has also threatened large tariffs on imports of EU cars and car parts, a trade worth around €50bn (£45bn) a year.

“At least on steel and aluminium, the world is undeniably facing challenges as a result of global over-capacity – the root cause of which is China. But similar moves on cars would be disastrous,” said Cecilia Malmstrom, the EU’s trade commissioner, in a speech to the German Marshall Fund in Brussels on Thursday.

Earlier this month the commission published an analysis suggesting that US car import tariffs would have an initial negative impact on US GDP of around $14bn.

But such levies would also have a severe impact on European car firms such as BMW, Volkswagen, Daimler and Volvo which export heavily to the US market.

Germany shipped 640,000 cards to the US in 2017.

Volvo recently opened a new car assembly plant in South Carolina, creating 1,500 new jobs. But the plant’s engines are imported from Europe, meaning they would be hit by a tariff on car imports.

BMW, which also has a large plant in South Carolina, has warned that new tariffs would put jobs at risk.

In her speech, Ms Malmstrom pointed out that many European car firms manufacture cars in the US which they then export around the world, including to Europe, meaning that new tariffs could harm US exports.

After Trump imposed levies on EU steel earlier this year, the EU hit back with levies on items such as Florida orange juice, Harley-Davidson motorcycles and Levi’s jeans.

Ms Malmstrom said that there would be further retaliation on cars.

“If the US would impose these car tariffs that would be very unfortunate. We are preparing together with our member states a list of rebalancing measures there as well. And this we have made that clear to our American partners. It is done in the same way as with steel and aluminium,” she said.

Ms Malmstrom is due to travel next week to Washington, along with the commission’s president, Jean-Claude Juncker, to discuss ways to end the trade war with President Trump and members of Congress.

Trump claims that EU tariffs on US car exports of 10 per cent, versus the US import tariff rate of 2.5 per cent, is strong evidence of trade being rigged against American manufacturers.

Last month he said on Twitter that: “Based on the tariffs and trade barriers long placed on the US and its great companies and workers by the European Union, if these tariffs and barriers are not soon broken down and removed, we will be placing a 20 per cent tariff on all of their cars coming into the US.”

Cecilia Malmstrom says whiskey, orange juice and peanut butter among targets of potential trade war with USA

Despite the car import tariff disparity, the 25 per cent US import tax on lorries is much higher than the EU’s.

Trump has also been escalating his parallel trade conflict with China.

The yuan slumped to a one-year low on Thursday as fears heightened about the effects on the world’s second-largest economy grew.