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.
The Dow closed down 420 points to 24,608, and the S&P 500 slid 1.3 percent to 2,677. The move was viewed as one of the most protectionist actions from the Trump administration, and it is one of his policies that has most worried markets, even as stocks have rallied on tax reform and his other pro-growth policies.
"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."