US President Donald Trump escalated threats of a trade war, saying he would slap a new tax on European cars if the EU retaliated against his proposed steel and aluminium tariffs, clearly giving out signals of an imminent trade war with allies.

Trump on Thursday called for tariffs of 25 per cent on steel imports and 10 per cent on aluminium products, a move he said would bolster those industries domestically, which evoked criticism by international trading partners who said Trump's plan could spark a trade war.

European Union officials said they would retaliate with new tariffs on US goods, including Harley-Davidson motorbikes, bourbon whiskey and Levi's jeans, to which Trump fired back threatening more tax on EU imports, that too, in a tweet on Saturday.

"If the EU (European Union) wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a Tax on their Cars which freely pour into the US," he wrote. "They make it impossible for our cars to sell there."

The entire scenario turns into a similar trade war US unleashed on Japan during the 90s when Japanese manufacturers were forced to shell out more investments and shift their manufacturing units to the US.

The US imported more than 1.2 million European cars from brands like BMW and Volkswagen in 2016, the most recent year for which data is available, according to the European Automobile Manufacturers Association.

Trump's surprise vow to impose a new steel tariff rocked global markets. Economists have warned the tariffs could put US jobs and industries at risk, CNN reported.

Trump stoked further fears of international turmoil on Friday by claiming "trade wars are good" and "easy to win".

Trump also fired off a tweet on Saturday saying "very stupid" trade deals are holding America back.

"The US has an $800 Billion Dollar Yearly Trade Deficit because of our 'very stupid' trade deals and policies," he said. "Our jobs and wealth are being given to other countries that have taken advantage of us for years. They laugh at what fools our leaders have been. No more!"

Analysts have predicted that Trump administration would invariably escalate the trade deficit in the coming years and it has come in his second year and that it might further expand to cover Japan, South Korea, China and India soon.

(With additional inputs from the Desk)