Published: 2019-08-02 14:53:22 BdST
Abruptly ending a temporary trade truce between the two countries, Trump said he would impose a 10 percent tariffs on $300 billion of Chinese exports to the United States from September 1.
Spooking investors further, Bloomberg reported that Trump is scheduled to make a statement on trade with the European Union at 1745 GMT on Friday.
That sent the pan-European STOXX 600 down 1.9 percent to a six-week low, with the basic material sector plunging 3.9 percent, and the auto and tech sectors sliding 2.7 percent.
"The announcement will only serve to create additional downward pressure on business confidence," said Mark Haefele, chief investment officer at UBS Global Wealth Management wrote in a note.
"If businesses stop hiring (as a result), this would greatly increase the risk of a recession."
Chipmakers Siltronic, Infineon, STMicro and ASML dropped by 4 percent to 6 percent while France's CAC 40 and Germany's DAX, often regarded as among the most sensitive markets to trade nerves, lost around 2.3 percent.
Most of Europe's main markets were set for their worst week since a slide in May, when a sudden break-down in trade talks between the two countries hammered markets.
A rally since then had been fuelled by hopes that major central banks would adopt looser monetary policy to offset the trade war's impact on growth, but the European Central Bank and the US Federal Reserve both disappointed investors last month with stances that were more cautious than expected.
Adding to the auto sector's woes, Italian tyremaker Pirelli slipped 4.6percent after cutting revenue guidance for the second time this year, joining a string of suppliers hit by a broader auto industry downturn.
"We now see a higher risk that tariffs could also be placed on auto imports," UBS's Haefele wrote. "Back in May, Trump announced that a decision on auto tariffs would be delayed by six months to allow time for negotiations, and it appears that little progress has been made since then."
Corporate earnings for the second three months of the year continue to pour in. French lender Credit Agricole slipped 5.3 percent after it said that a weak performance at its corporate and investment unit had weighed on its profits.
German insurer Allianz fell 2.7 percent and was among the biggest drags on STOXX 600, despite posting a better-than-expected quarterly net profit and confirming its full-year profit target.