Tariffs factor in because they are inherently inflationary, raising the costs of goods and impacting corporate bottom lines. Corporate earnings reports have been trickling in so far, and companies have been largely getting punished badly for misses. Those that have reported have seen an average 3.8 percent share price decline on reporting day, according to Bespoke Investment Group.
Earnings season kicks into full gear Friday with reporting from the big Wall Street banks.
"What the market is really fretting about and is going to fret about for a while is inflation," Cohn said. "The Fed will get to the point where they squash inflation, but it's going to take time and the market's going to do another flatline in 2019."
The tariff situation, in the meantime, will be a significant obstacle for companies in a variety of sectors.
Moody's Investors Service is warning that the back-and-forth between the U.S. and China will impact investments and raise tensions. The ratings firm predicts that "significant sector and regional impacts are likely, including unintended consequences on domestic supply chains."
"Industries that will use more expensive imported or domestically produced inputs will be hurt," Elena Duggar, chair of Moody's Macroeconomic Board, said in a statement. "Moving production chains will be costly and rising uncertainty will affect investment."
Tariffs will negatively impact credit for U.S. retail and wholesale distributors of furniture, home goods, electronics, hardware and appliances that take goods from China, the ratings agency said. In addition, the impact of tariffs in intermediate goods will hit the construction, transportation, telecommunications and machinery manufacturing industries.
Finally, limits on exports and investments with Chinese companies could impact the tech industry, particularly semiconductors, Moody's added.
"That's significant but it hasn't happened yet. So whatever's happening right now is anticipatory," Karabell said. "The specter of it is enough for people to go 'wait a minute.'"
Markets took another beating Thursday, with the Dow industrials off more than 500 points in late-afternoon trading as investors continued to worry that more damage could be ahead.
""While tensions over widespread protectionism have faded as talks have been scheduled and some deals have been struck, U.S.-China tensions have escalated," Jeffrey Kleintop, chief global investment strategist at Charles Schwab, said in a statement. "A deal is still possible, but so is escalation."