Trump's Tariff Announcement Unnerves Markets

In the meantime, the stock market is a "either setting up a massive buying opportunity in U.S. stocks — which is what we believe — or it is setting up an economy that will be forced into recession by protectionism (which we do not believe)," says Kotok. Either outcome has become less predictable. Trump has raised risk premia in all markets."

There are multiple consequences If Trump does impose the tariffs he's announced, which support steel and aluminum producers but hurt manufacturers who use steel and aluminum in their production process, such as automakers.

Ford and GM can "raise prices, which will start to push inflation up higher, or they can eat the higher costs and makes less money," says McMillan. "Either way this is bad for the stock market."

It's also bad for consumers. "These tariffs are a misguided approach that will hurt American businesses and families by increasing costs and undermining the tax relief just delivered by Congress and President Trump," according to a press release from Americans for Prosperity, the conservative political advocacy group financed by the Koch brothers.

Then there's the reaction from the countries whose products have become more expensive and less competitive on the world market. They could "start imposing retaliatory tariffs of their own, targeted to cause maximum pain to the U.S. economy," writes MacMillan.

"The net effect … will be economic damage , higher inflation and greater geopolitical uncertainty … lower profits for the vast majority of companies and higher prices for many goods and, likely, lost jobs in export industries. That is why this issue is worth watching closely."  

"The greater threat is that this escalates into an actual trade war," writes Ben Inker, head of GMO's Asset Allocation team, in his latest commentary.