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US President Donald Trump pressed ahead with the imposition of 25 per cent tariffs on steel imports and 10 per cent for aluminium. But he exempted Canada and Mexico, backtracking from earlier pledges of tariffs on all countries, while other countries can apply for exemptions.

The announcement was viewed by investors as a watered-down version of the initial plans, but investors are still worried about whether this will trigger a broader trade conflict that could prompt retaliation.

Here’s how the tariffs have jostled asset prices and could sway markets going forward:

STOCKS

The potential for Trump’s actions to sprawl into a broader trade war has caused uncertainty for equity investors, amid a volatile trading environment after a swift 10 per cent correction last month.

An escalation into a trade war could reduce future growth expectations and equity valuations, according to UBS strategists.

In and of themselves, the steel and aluminium tariffs are seen as having limited overall impact. But the prospect of tariffs has weighed on shares of specific industries, such as machinery companies and automakers, because of the potential to raise their costs.

One reaction from investors has been to move into US small-cap stocks that are more domestically focused.

DOLLAR

Currency markets, in general, dislike any form of trade intervention and previous protectionist efforts by the US have resulted in dollar weakness.

Tariffs introduced by Presidents George W. Bush and Bill Clinton in 2002 and 1995 resulted in a 15 per cent decline in the dollar overall, according to TD Securities, although there were other factors that also undermined the US currency during those periods.

The biggest risk for the dollar stems from the possible exodus of capital flows. If risk sentiment worsens significantly, this would outweigh any short-term advantage the dollar would have against emerging markets in its role as a safe-haven bet, analysts say.

The dollar fell against most currencies after the original announcement about the tariffs, last week, sliding to a two-year low versus the yen.

BONDS

The potential impact of tariffs on the US Treasury market is less clear than other asset classes, and likely depends on how trade restrictions impact the economy. Widespread tariffs could add to inflationary pressures, which could increase the likelihood of additional rate increases by the Federal Reserve, negatively impacting bonds.

Trade restrictions could also risk upsetting trade partners such as China, which is a large holder of US debt. That could in turn lead the country to reducing Treasury purchases or even dumping its bond holdings as a retaliatory measure, though analysts see the probability of such an event as low.