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Trump’s proposed tariffs have unintended consequences

It would appear that the Trump administration intends to proceed with its proposed steel and aluminum tariffs on the heels of economic adviser Gary Cohn's resignation. This policy action has sweeping implications across several markets.

The tariff proposal has been met by widespread opposition from U.S. trade partners and congressional Republicans who fear such a policy could sour relations around the world.

The administration's new move on trade could not have come at a more inopportune time, and could result in several unintended consequences. A rupture in trade relations between the U.S. and trade partners across the globe could open the way for retaliatory action and stifle long-term investment plans.

The global economy is in woeful need of fresh capital investment, and generally companies invest only in a climate of free an open markets. Therefore, any conflict in the trade arena could scuttle long-term investment plans and dampen growth.

Although the Trump administration on Wednesday hinted that Mexico and Canada could be exempt from the tariffs, the move did not eliminate the prospect of a trade war with the rest of the world, including our allies in Europe.

Equities have already felt some of the heat as investors fear that the proposed tariffs could have a dampening impact on the U.S. economy just as markets were looking for explosive growth from the new tax law.

Yet another inadvertent consequence of a tariff could be rising inflation, but of the bad sort — from consumer costs rather than in hourly wages — which may force the Federal Reserve to tighten monetary policy even as growth begins to slow.

So far the markets are relatively sanguine, treating the whole tariff issue as a tempest in a teapot.

Still, given the shift in the macroeconomic landscape in recent sessions, investors should be on high alert for any material weakness in equities because the sell-off could be long-lasting, especially if the rest of the world decides to respond in kind.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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