The Trump administration has sparked a trade war with the European Union, Canada and Mexico after it announced it will impose large tariffs on steel and aluminium imports from midnight tonight.

The US had initially granted an exemption to the EU from the levies announced by Donald Trump in March in order to protect US metal producers, after European governments lobbied against the taxes. The US’s neighbours Canada and Mexico had also been exempted.

But these exemptions were due to expire on 1 June and trade negotiations designed to extend it are now judged to have failed by Washington.

The EU responded by saying it will impose retaliatory tariffs on US goods and take the US to the World Trade Organisation’s “trade court” to get Mr Trump’s policy declared illegal.

Britain branded the move as "absurd" with Liam Fox, the international trade secretary, signalling the UK could take retaliatory measures.

The announcement from the US commerce secretary, Wilbur Ross, comes as Mr Fox's department seeks to lay the groundwork for a post-Brexit trade deal with Washington.

Steel imports will now be hit with a 25 per cent US levy. Aluminium exporters will face an additional 10 per cent charge. The Trump administration claims these are justified on US “national security” grounds.

The EU has previously threatened retaliatory duties on US whiskey, jeans, orange juice, peanut butter and other products if the US followed through on its metal tariff plans.

And the president of the European Commission, Jean-Claude Juncker, said in the immediate wake of the US announcement that the EU would introduce “counter-balancing” measures in “the coming hours”.

Cecilia Malmstrom, the EU trade commissioner, said: “Today is a bad day for world trade. We did everything to avoid this outcome.

“Throughout talks, the US has sought to use the threat of trade restrictions as leverage to obtain concessions from the EU.

“This is not the way we do business, and certainly not between longstanding partners, friends and allies.”

Ms Malmstrom said the EU would trigger a case at the WTO ”since these US measures clearly go against agreed international rules”.

Canada responded with a threat to impose retaliatory tariffs on billions of dollars worth of US exports and a promise to challenge the move under the North American Free Trade Agreement and the World Trade Organisation, foreign minister Chrystia Freeland said.

France's Emmanuel Macron called the decision a mistake and illegal and said he would speak with the US president on the phone to express his concern.

The reaction from UK businesses, which will not be spared from the US action, was one of alarm.

“The president’s measures are deeply concerning for firms in the UK, for close trading partners and across supply chains,” said Ben Digby, the international director of the CBI.

“There are no winners in a trade war, which will damage prosperity on both sides of the Atlantic. These tariffs could lead to a protectionist domino effect, damaging firms, employees and consumers in the US, UK and many other trading partners.”

Around 32,000 people in the UK work in the steel industry, mainly in Wales, Yorkshire and the Humber. The GMB union has warned that thousands of UK steel jobs could be at risk from the US tariffs.

“This is a bad day for the steel sector, for international relations and for free trade,” said Gareth Stace, the director of UK Steel, warning that UK producers are likely to be “hit hard” by the decision.

A spokesperson for the UK government said: “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 and other European Union countries are close allies of the US and should be permanently and fully exempted from the American measures on steel and aluminium.”

In the talks earlier this week, the US side had been pushing for concessions from the EU side, such as a lowering of tariffs on American imported cars and voluntary quotas to limit EU steel exports to the US.

But the EU side had baulked at negotiating “with a gun to our head”.

The global steel market has long been suffering from chronic overproduction, which has been exerting downward pressure on prices for years. Statistics suggest that China is the main overproducer, but the US imports relatively little steel directly from China, meaning that to relieve the pressure on US steel-makers the Trump administration has been forced to target the likes of the EU, Canada and South Korea.

After first announcing his steel tariffs in March, President Trump had tweeted that “trade wars are good and easy to win”.

Cecilia Malmstrom says whiskey, orange juice and peanut butter among targets of potential trade war with USA

Mr Ross told the US TV channel CNBC on Thursday that EU retaliation was unlikely to have much impact on the US economy.

He added that he believed there would not be a long-term impact on relations with affected countries and that they “will get over this in due course”.