Donald Trump has urged the EU to drop all tariffs and trade barriers ahead of make-or-break talks with European Commission president Jean-Claude Juncker.

Mr Juncker is meeting Mr Trump in Washington in a last-gasp bid to stop the US president slapping import taxes on European cars and escalating the tit-for-tat tariffs exchange between the two allies.

EU trade commissioner Cecilia Malmstrom warned the White House before the meeting that it is lining up new tariffs on $20bn of US goods if Mr Trump targets EU car imports.

She said the EU "is preparing a rather long list of many American goods" and will widen its measures after targeting iconic US brands, such as Harley-Davidson motorbikes and Levi's jeans, in the first wave of tariffs.

In tweets hours before the talks, Mr Trump suggested he would show "no weakness" and blasted "vicious" Chinese tariffs impacting US farmers. Reports in the US suggested that Mr Trump's advisers believe that the US president will slap 25pc tariffs on $200bn of cars arriving into the States

With trade tensions coming back to the fore on markets, stocks struggled to extend yesterday's strong rally. Mining stocks led the FTSE 100 to a 0.7pc loss while the DAX, which includes car manufacturing giants Daimler, BMW and Volkswagen, slipped 0.9pc.

General Motors shares plunged as much as 7pc when markets opened in New York after lowering its earnings forecast on higher steel and aluminium costs following Mr Trump's tariffs.

"The outcome of today’s meeting could leave a lasting impact on the markets," warned Lukman Otunuga at FXTM.

"If the talks prove unsuccessful and trade tensions end up escalating further, risk sentiment is likely to be negatively impacted."