Rachel Reeves has said that the UK is not planning retaliatory tariffs on the US, at least for now, after Donald Trump announced a 25% tariff on all car imports, sending shares in carmakers sharply lower.

“We are not at the moment in a position where we want to do anything to escalate these trade wars,” the UK chancellor told Sky News when asked if Britain would impose retaliatory tariffs against the US. “Trade wars are no good for anyone.”

She said an escalation of tariffs would be bad for Britain “but it would be bad for the US as well, and that’s why we are working intensely these next few days to try to secure a good deal for Britain”, Reeves said in an interview with the BBC. “We don’t want to get into a trade war.”

Trump said in the Oval Office that the tariffs “start off with a 2.5% base, which is what we’re at, and go to 25%”.

The new levies on cars and light trucks will take effect on 3 April, a day after Trump plans to announce reciprocal tariffs aimed at the countries responsible for the bulk of the US trade deficit.

Shares in US carmakers fell in after-hours trading after Trump’s announcement, with General Motors down by 6.2%, while Ford lost 4.7%.

Aston Martin was the top faller on the FTSE 100 index in London on Thursday morning, with the shares falling 6% to hit a record low of 67p. The FTSE 100 fell more than 50 points in early trading.

Carmakers dragged European shares to a two-week low. Volkswagen lost 3.6% – the company is the most exposed to tariffs among German carmakers because of its large supply base in Mexico and lack of US production for its Audi and Porsche brands.

The Dax, the benchmark index for Germany, which is among the biggest suppliers of cars and car parts to the US, fell by 1.6%.

The Chrysler parent, Stellantis, slumped by 6.4%, Mercedes-Benz lost 5.5%, BMW fell by 3.9% and Porsche slid by 4.2%, while Volvo Cars and the car parts maker Continental declined by about 2.5% each.

It was a similar picture in Asia. In Japan, shares in Toyota Motor lost 2%, Honda Motor fell by 2.5%, while Nissan Motor was down by 1.7%, which helped to pull the Nikkei index down 0.6%. In South Korea, Hyundai Motor’s shares fell by 4.3%, only days after it tried to placate Trump by announcing a $21bn investment in the US.

The UK’s Society of Motor Manufacturers and Traders called for more government support after reporting another fall in output. Mike Hawes, its chief executive, said: “These are worrying times for UK vehicle makers with car production falling for 12 months in a row, rising trade tensions and weak demand.”

He urged the UK and US governments to “come together immediately and strike a deal that works for all”.

Eurozone bond yields fell, as traders’ interest rate expectations shifted. Germany’s two-year bond yield, which is sensitive to European Central Bank rate expectations, fell five basis points in early trading to 2.07%, its lowest since 4 March.

Germany’s 10-year bond yield, the benchmark for the eurozone, fell by four basis points to 2.755%, while the Italian equivalent slid by three bps to 3.869%.

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Traders in money markets added to their bets on ECB rate cuts and priced in a rate of 1.94% by the end of the year, down from 1.98% on Wednesday. Interest rates are currently at 2.5%.

Daniel Bergvall, the head of economic forecasting at SEB, said: “The escalation risks further dampening growth in several countries through cost increases and generally increased uncertainty.”

Trump’s announcement drew swift condemnation from the EU and from the Canadian prime minister, Mark Carney, who called it a “direct attack” on Canadian workers. The European Commission president, Ursula von der Leyen, described the move as “bad for businesses, worse for consumers”.

The new tariffs could increase the cost of a US vehicle by thousands of dollars, given the intertwined manufacturing operations across Canada, Mexico and the US.

Germany’s economy minister and the main industry body slammed the tariffs, warning that they would harm the European and US economies, and called for urgent negotiations to ward off a spiralling trade war.

Germany’s economy minister Robert Habeck called for the EU to give a firm response to Trump, saying: “It needs to be clear that we will not take this lying down.”