In London, the FTSE 100 closed down 0.4% to 7,603.85 points; Frankfurt — DAX 30 ended down 1.2% to 12,677.97 points and Paris — CAC 40 fell 1.1% to 5,390.63 points yesterday.
Eyes were also on talks in Germany between the country’s Chancellor Angela Merkel and French President Emmanuel Macron on EU reform.
Merkel and Macron have both stressed that the bloc must learn to stand its ground on the world stage, as Trump openly challenges the EU with a trade war and over security and climate policy.
Merkel announced an agreement to set up a common budget for the eurozone, but concerns over her political future are likely to remain, in turn weighing down European stocks.
“Political concerns continue to fester in Germany and Brexit uncertainty is lingering,” Charles Schwab analysts wrote.
More broadly, it was the volatility sparked by Trump’s latest threats that was most felt on trading floors worldwide.
“The clear escalation that’s occurred in recent days has shaken investors and appears to have brought an end to the good run that US stock markets had been on since the start of May,” wrote Craig Erlam, market analyst at Oanda.
“While Chinese stocks are faring much worse at the moment, US companies are obviously not immune to a trade war and could come under more pressure unless both sides find a solution.”
Trump has asked the US Trade Representative to identify $200bn worth of imports to be targeted, adding he would hit a further $200bn if Beijing retaliates.
The US and China, the world’s top two economies, already announced on Friday tit-for-tat measures on goods valued at about $50bn as the US president pushes ahead with his protectionist America First agenda.
Stephen Innes, head of Asia-Pacific trading at Oanda, said Trump’s latest move goes “beyond ‘tit-for-tat’ levels and, predictably, investors are running for cover under the haven umbrellas as global equity indices are crumbling under the weight of an escalating trade war”. The trade tensions, coupled with a strong dollar, have particularly hurt emerging markets, FXTM research analyst Lukman Otunuga wrote.
“Intensifying trade tensions may trigger fears of increasing global protectionism negatively impacting growth in developing nations — ultimately spelling more trouble for (emerging market) currencies and stocks,” he wrote.
Meanwhile, oil prices stayed on their downward slope ahead of a key Opec meeting on crude output levels on Friday, in an apparent sign that investors were expecting the cartel and Russia to open the taps.
And while recent statements by officials from oil giants Saudi Arabia and Russia appear to indicate that a hike may well be on the horizon, Opec summits can be full of surprises.