The decision by US president Donald Trump to impose tariffs on imports of aluminium and steel from the EU, Canada and Mexico has been met with outrage but it remains to be seen whether it will lead to an all-out trade war. 
Tariffs of 25 per cent on steel imports and 10 per cent on aluminium were implemented in what Trump described as measures to protect US national security from the effects of oversupply.
The move followed months of discussions between Canada, Mexico and the EU. Other countries including Australia, Argentina, Brazil and South Korea had already reached agreements with the US to restrict imports of the metals.
Earlier in the week, Trump had signalled a harder line on trade negotiations as he accused China of “years of unfair trade practices”.
He said: “From now on, we expect trading relationship to be fair and to be reciprocal.”
However, the move raises the prospect of affected countries taking the US to the World Trade Organisation (WTO), the body responsible for regulating international trade.
European Commission president Jean-Claude Juncker said such unilateral tariffs by the US were “unjustified and at odds with World Trade Organisation rules”.
“This is protectionism, pure and simple,” said Juncker. “Overcapacity remains at the heart of the problem and the EU is not the source of but on the contrary equally hurt by it.”
Juncker said that the EU has been open to renegotiating trade relations with the US but would not negotiate under threat.
He added: “The US now leaves us with no choice but to proceed with a WTO dispute settlement case and with the imposition of additional duties on a number of imports from the US. We will defend the union's interests, in full compliance with international trade law.”
However, the tariffs were met with immediate reaction by the affected countries, with Canada imposing like-for-like measures, Mexico raising import duty on several sectors and the EU opting to target symbolic areas of the economy like peanut butter, bourbon whisky and motorbikes.
“Everybody loses in a protracted trade war, we encourage countries to work constructively together to reduce trade barriers and to resolve trade disagreements without resort to exceptional measures,” said International Monetary Fund spokesperson Gerry Rice.
“It is unfortunate that trade tensions are rising at a moment where the global recovery is being supported by trade.”
Rice added: “For the first time in a long time, trade is growing faster than global GDP and spreading recovery around the world. Because of trade and innovation, billions of people today enjoy longer, healthier and more prosperous lives.”
Hartwig Kos, co-head of multi-asset at SYZ Asset Management, said Trump’s negotiation style was “nothing short of bullying”.
“Assuming that all US steel imports have a tariff of 25 per cent, US steel companies will be able to raise their prices by 20 per cent and still be competitive,” he said. “The person that ends up paying, is the US consumer in the form of higher end prices. That is what tariffs actually are; hidden consumption taxes and nothing else.
“So, unless he treads more lightly, Trump might, instead of ‘making America great again’, end up only making it greatly expensive for his electorate.”
Adrian Lowcock (pictured), investment director at Architas, said it can be difficult for managers to predict what sectors are likely to be targeted in retaliation until they are announced. 
“Overall a trade war is another factor fund managers need to be aware of when making investment decisions, for stock pickers it won’t be their focus as they don’t look at the backdrop but instead consider the fundamentals of a business and its own opportunities,” he said.
“They can focus on businesses with healthy margins as well as those which are less dependent on US trade or companies which are more domestically focused.
“In addition, managers can look for businesses in a position of self-help or operate in niche areas which are less vulnerable to tariffs.”
For more top-down managers, however, the unpredictability of trade wars poses a much greater challenge, according to Lowcock. They can also have a number of unintended consequences on the local and global economy.
“Longer term the issue with trade wars is that it will affect global growth as the costs are almost always passed onto the consumer eventually,” he said.
Lowcock added: “That puts the economic recovery at greater risk with the potential for a downturn in the future and at the very least lower demand and lower corporate profits and therefore lower potential returns for investors.”
Some believe that the move by Trump – famed for writing a book titled ‘The Art of the Deal’ in the 1980s – could be bluffing.
“If the recent past is anything to go by, I'm expecting the tariffs to be dropped for some of his closest allies in a ‘I'm a nice guy really,’ kind of negotiating tool,” said Andrew Merricks, head of investments at Skerritts Wealth Management (pictured). 
“Trump is impulsive. We've seen that. Not everything goes at the pace he wants. We've seen how his diplomacy methods have shaken ‘the establishment’ who are more used to doing everything at a slower pace and by committee. This could be another example of him telling the allies to pull their finger out.”
He added: “What it does do is send a message to China that he's serious and I expect the trade war with China to be ramped up in the coming weeks. This is not good news generally and will keep volatility to the fore over the summer.”
Merricks said that he remains more concerned about increased tensions between Iran and the US over sanctions related to the former’s nuclear programme.
“This has gone a bit quiet and when something goes quiet recently it tends to come back centre stage with a bang,” he explained.
“I think oil prices are being underestimated to the lower end of expectations and we're putting some oil ETCs [exchange-traded commodities] into our funds as a hedge against this.”
Merricks added: “Disruption to the supply brought about by Iranian action could see prices spike.”