The US Trade Representative proposed a list of European Union products late on Monday on which to slap tariffs in retaliation to more than $11 billion of EU subsidies to Airbus the World Trade Organization has found cause "adverse effects" to the United States.
Piling on the uncertainty, the IMF on Tuesday cut its global economic growth forecasts for 2019, citing a potentially disorderly British exit from the European Union as a key risk.
"It's been long accepted that while Europe hasn't been strongly targeted yet, it was going to be the case once China wrapped up, and Europe would be next," said Craig Erlam, senior market analyst at OANDA in London.
The pan-region STOXX 600 index fell 0.3 percent, slipping away from an about eight month-peak seen earlier in the day. Germany's trade-sensitive DAX dropped 0.9 percent.
Airbus slid 1.6 percent after the United States included large commercial aircraft and parts on its proposed tariff list of EU products. The European planemaker said it saw no legal basis for the move.
"It's only natural that Airbus will be among those targets, because its such an important firm for Europe," said Oanda's Erlam, adding,"I think the timing of it probably is not too coincidental, given the fact there has been so much tension on Boeing."
Airbus's stock has broadly benefited from issues plaguing rival Boeing Co's after an Ethiopian Airlines Boeing 737 MAX plane crash spurred a production cut by the US company.
Suppliers to Airbus such as Safran SA, Leonardo and Rolls-Royce Holdings shed between 1.3 percent and 2.1 percent on the day.
Safran's stock has been hit in recent weeks, as the French firm has been swept up in the turmoil around Boeing Co, to whom a Safran-General Electric Co joint venture supplies engines.
Premier Li Keqiang of China, the United States' long-time trade enemy, promised his European Union hosts Beijing will no longer force foreign firms to share sensitive know-how when operating in China and was ready to address industrial subsidies.
European technology stocks had a particularly bruising day, falling 1.5 percent in their worst session in two and a half weeks.
SAP led losses on the sector index with a 3.4 percent slide after it was downgraded by UBS and HSBC. The stock fell for a fourth straight day.
Oil and gas stocks slipped 0.8 percent, after hitting a near six-month peak earlier on Tuesday. Global oil benchmark Brent fell on Russian comments signalling the possible easing of a supply-cutting deal with OPEC.
Bank stocks edged up 0.1 percent, rising for the first time in three sessions to help restrain the broad benchmark from incurring a steeper loss.
The European Central Bank is expected to hold borrowing costs on Wednesday, the same day British Prime Minister Theresa May's request to delay Brexit until June 30 will be formally discussed by EU leaders at a special summit.
Swiss drugmaker Novartis ended 2 percent lower after completing the spin off of its eyecare unit Alcon , whose stock jumped about 40.2 percent.
Merck KGaA slid 2.6 percent after winning the backing of Versum's board for a sweetened $6.5 billion takeover bid, overturning Versum's agreed merger with Entegris .
Helsinki-listed DNA surged 8.6 percent after Norway's Telenor agreed to buy a 54 percent stake in the Finnish telecoms firm for 1.5 billion euros ($1.69 billion). Telenor shares ended 0.8 percent lower.