The European Union has warned that its trade with the United States could be effectively wiped out if Washington makes good on its threat to slap a 30% tariff on goods imported from the bloc.

Europe’s economic optimism is facing a critical test as US President Donald Trump’s unexpected threat to impose a 30% blanket tariff on EU exports from 1 August reignites fears of a transatlantic trade war.

The bloc’s trade commissioner says the two sides were close to a deal before the president last week threatened to impose a 30 percent levy.