The European Union will target consumer, agricultural and steel products made in many key Republican constituencies when it imposes tariffs against US imports in retaliation for punitive duties US President Donald Trump announced yesterday.
The Trump administration's tariffs on imports from key allies sent US and European stocks into a tailspin and stoked demand for the safety of government bonds.
The US president's escalation of trade tensions with Canada, Mexico and the European Union hammered American industrial and financial shares.
The Trump administration's unilateral action upended the global trade order and was met with retaliatory actions that could imperil economic growth.
The ratcheting up of tension overshadowed reports that Italy is close to forming a government that is more EU-friendly than investors had feared.
The Trump administration hit the EU, Canada and Mexico with 25pc duties on imported steel and 10pc on aluminium in Washington's most aggressive trade action yet against allies.
Washington claimed it was acting to protect national security, an assertion members of the EU have dismissed. Ireland risks being on the front line if the trade war heats up.
A presentation circulated by the National Treasury Management Agency (NTMA) yesterday shows the US is our biggest single trading partner - followed by the United Kingdom.
Last night Brussels said it will impose retaliatory tariffs on €2.8bn of selected American imports as soon as June 20. Harley-Davidson motorbikes and bourbon whiskey, both produced in districts supportive of the ruling US Republican Party are expected to be among the goods slapped with import duties.
Europe will also take its case to the World Trade Organisation (WTO).
"The US now leaves us with no choice but to proceed with a WTO dispute settlement case and with the imposition of additional duties," European Commission President Jean-Claude Juncker said. "We will defend the Union's interests, in full compliance with international trade law."
The Republican speaker of the House of Representatives, Paul Ryan, is from Wisconsin, home of Harley-Davidson, and Senate Majority Leader Mitch McConnell is from Kentucky, where bourbon whiskey is made.
Harley-Davidson said it will suffer as a result of tariffs.
"We support free and fair trade and hope for a quick resolution to this issue," the bike-maker said in an emailed statement. "A punitive, retaliatory tariff on Harley-Davidson motorcycles in other major markets would have a significant impact on our sales, our dealers, our suppliers and our customers in those markets."
The dispute is likely to dominate a meeting of finance ministers from the Group of Seven nations in Canada. The US has just slapped tariffs on five of it six counterparts, including the host.
"We are deeply disappointed that the US has decided to apply tariffs to steel and aluminium imports from the EU on national security grounds," the UK government said in a statement.
Germany "rejects the tariffs imposed by the US on steel and aluminium," Chancellor Angela Merkel's chief spokesman said in emailed statement.
"We consider that this unilateral measure is unlawful, and that the national security concerns given as the reasons can't be upheld," the spokesman added. "The measures instead carry the risk of creating a spiralling escalation that will harm everyone."
French officials said the EU isn't seeking a trade war but has no choice but to impose "re-balancing" tariffs on selected US exports. The finance officials said it was hard to envision talks happening with the tariffs in place.