President Donald Trump's plan to slap tariffs on foreign aluminum and steel could help U.S. producers, but it could also fuel inflation, slow the economy and trigger other retaliatory actions against U.S. industries, analysts said.
These fears weighed on stocks, and the market sold off sharply after initially flip-flopping amid confusion over whether there would be an announcement or not. But stocks sold off sharply when Trump surprised the markets and announced a 25 percent tariff on steel and a 10 percent tariff on aluminum.
"One of the largest fears we have is we've got tariffs. We could have trade wars, and it could blow up NAFTA negotiations, and nobody wins a trade war," said Art Hogan, chief market strategist at B. Riley FBR.
"Tariffs would probably have the unfortunate effect of both slowing growth and accelerating inflation, and that's not a good thing," said Ward McCarthy, chief financial economist at Jefferies. "For this economy, this is the worst possible time to be doing that."
While strategists said the possible tariffs on steel and aluminum did not signal a full-blown trade war, they could have the effect of creating trade skirmishes that could accelerate.
Dana Peterson, a Citigroup economist, said the use of tariffs for national security reasons is a centerpiece of Trump's trade policy and the use takes trade disputes into a new territory. "It certainly opens the door for other countries to claim the same thing," she said. "That's when trade wars begin."
Reference: CNBC
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