Rachel Reeves has said the UK is not immediately planning retaliatory tariffs on the US after Donald Trump announced a 25% tariff on all car imports, sending shares in carmakers around the world 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.”

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 a BBC interview. “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%”.

Speaking to reporters in Paris, Keir Starmer called the latest US tariffs “very concerning”.

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% and Ford 4.7% lower.

Cars are the UK’s biggest goods export to the US, with £6.4bn in sales in 2023, led by manufacturers such as Aston Martin, Jaguar and Land Rover.

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.

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 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”.

Reeves also said the government could review an electric vehicle incentive scheme that had given subsidies to Tesla, which is owned by Trump’s senior adviser Elon Musk. Canada recently froze rebate payments to Tesla.

As a company that only sells EVs, it can sell surplus credits to car firms that are struggling to meet EV sales targets set by the government.

“We are looking at the zero-emission vehicle mandate, which is why some of … that money goes to Tesla, and looking at how we can better support the car manufacturing industry in the UK,” Reeves said.

Asked if Britain could save carmakers such as Jaguar Land Rover, Rolls-Royce and Aston Martin from tariffs, she said: “That’s what we’re working on. We’ve got a few more days left of those negotiations before these tariffs are due to come in.”

Starmer, who was in Paris for a summit on Ukraine, insisted all options are open.

“Rather than jumping into a trade war, it is better, pragmatically, to come to an agreed way forward on this, if we can,” he said. “But look, we always have to put the national interest first, and that’s why also being clear that as we engage in those negotiations, those discussions, we will keep all options on the table.

“The industry doesn’t want [a] trade war, but it’s important we keep all options on the table.”

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