The EU's Emissions Trading System (ETS) for airlines, introduced on 1 January, has drawn howls of protest from airlines around the world, with China banning its carriers from taking part.
The escalating row comes just ahead of a summit between Chinese and EU leaders in Beijing on Tuesday, with the EU looking to China to dip into its huge foreign exchange reserves to help the eurozone tackle a debt build-up that threatens its economic stability.
Tom Enders, Airbus chief executive, said he was increasingly concerned at the potential fall-out if tensions are not defused.
"I am very worried about the consequences of that. What started out as a solution for the environment has become a source of potential trade conflict and that should be a worry for all of us," he told an aviation conference ahead of the Singapore Airshow on Monday.
China is seen as a vital strategic market for the world's two big planemakers, as it coordinates purchases centrally and regularly places orders with Airbus and Boeing in batches of 100 or more to coincide with high-level political contacts.
Chinese domestic air traffic quadrupled between 2000 and 2010, and is expected to keep growing at more than 7% a year up to 2030, according to Airbus research, and Boeing predicts China will be the second-biggest market for new aircraft behind the United States between 2011 and 2030.
China last year delayed the final signing of a deal for 10 A380 superjumbos worth more than €3 billion for Hong Kong Airlines in a signal of its displeasure over the EU plans, and in the mid-1990s, it refused to buy French products such as wheat and Airbus planes in retaliation for France selling fighters and frigates to Taiwan.
Last week, Beijing banned its airlines from joining the ETS without its permission, and threatened to take unspecified measures to defend itself against the scheme, which levies charges for carbon emissions on flights in and out of Europe.
Foreign governments argue that the European Union is exceeding its legal jurisdiction by calculating the carbon cost over the whole flight, not just Europe.
Kallas defends ETS
European Transport Commissioner Siim Kallas acknowledged the growing opposition to the scheme, notably from China, the United States and India, and said he was willing to be flexible in finding a solution.
But EU would not bow to pressure to suspend the scheme, which it says is part of a global fight against climate change. Aviation accounts for around 3% of mankind's greenhouse gas pollution.
"If you think Europe will be forced to suspend, this is not the case. We must have a real global solution," he said in an interview in Singapore.
"Europe will implement its system with difficulties, with conflicts, with court cases, whatever, the system will be introduced," Kallas said.
French Transport Minister Thierry Mariani said both Airbus and Air France had expressed their concerns that the dispute should not be allowed to harm French competitiveness.
Some European airlines worry the scheme could backfire on them if foreign governments retaliate by limiting traffic rights or imposing tit-for-tat taxes and charges.
The International Air Transport Association, the airline industry's trade group, has called for the United Nations to get involved through its International Civil Aviation Organization to avoid a trade war.