The U.S. imported $62.5 billion in autos and auto parts from the European Union in 2017, according to U.S. Census data, and a 20 percent tariff on those goods could drive up their costs for consumers.
Trump's threats come the same day that a new round of retaliatory tariffs imposed by the European Union against $3.2 billion worth of US imports goes into effect.
The warning to Mr Trump comes a day after he raged about European Union tariffs put on imported USA cars of 10 percent, compared with America's 2.5 percent levy on cars imported from the US.
While Germany imported the fifth-most vehicles into the USA last year, the home of Europe's biggest economy punches above its weight in attracting Trump's ire.
Trump's latest salvo against the European auto industry threatens to broaden a trade war that he's already sparked with China. The threat comes as General Motors said it will build its new Blazer SUV in Mexico, highlighting the difficulty Trump is having in getting automakers to bend to his will. The deadline for completing the investigation is February, 2019, but Commerce Secretary Wilbur Ross said Thursday said the department aims to wrap up the probe much earlier, by late July or August.
"We have a trade war - and it's an escalating trade war", SEB chief economist Robert Bergqvist told AFP in an interview. He told automakers at a White House meeting in May that he was planning tariffs on some imported vehicles.
"Having ordered an investigation into whether auto imports are a national security threat, he has now undercut that by reaching his conclusion before the investigation has barely begun", Reinsch said.More news: The burgeoning US-China trade war has entered a new phase
Wednesday, Cecilia Malmström, European Union commissioner for trade, said although the bloc didn't want to tax the United States, they had no choice.
Trump has repeatedly singled out German auto imports to the United States for criticism. BMW has a big plant in Spartanburg, South Carolina, and Mercedes-Benz has a factory in Tuscaloosa County, Alabama.
Earlier this month, Mexico imposed a series of tariffs on $3 billion worth of United States exports of pork, apples, potatoes, bourbon as well as different types of cheese.
"The rules of worldwide trade, which we have developed. with our American partners, can not be violated without a reaction from our side", Commissioner for Trade Cecilia Malmström said.
Earlier, China underestimated President Donald Trump's resolve to move forward with tariffs unless Beijing changes its "predatory" trade practices, a top U.S. trade advisor said on Tuesday, in comments that diminished the chances of a negotiated settlement to a looming trade war between the world's economic superpowers.
Trump used a similar tactic to unilaterally impose tariffs on aluminum and steel imports from a number of countries, angering a number of US lawmakers but also his foreign counterparts in Europe, Canada, Mexico, Japan, and a number of other countries.
Felipe Munoz, global analyst at JATO Dynamics, said: "While German-made cars accounted for 4% of Q1-18 United States sales, American-made cars made only 1.3% of German registrations in the first quarter". In total, the United States exported $10 billion worth of passenger vehicles to the United States in 2017.
An increase in tariffs on European cars would be "terrible" for German manufacturers in particular, Evercore ISI auto analyst Arndt Ellinghorst wrote Friday. "I see it helping the used vehicle market more". Trump has slammed United States automakers for manufacturing vehicles overseas.