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 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."

While strategists said the possible tariffs on steel and aluminum did not signal a full-blown trade war, they could have the effect of creating trade skirmishes that could accelerate. Dana Peterson, a Citigroup economist, said the use of tariffs for national security reasons is a centerpiece of Trump's trade policy and the use takes trade disputes into a new territory. "It certainly opens the door for other countries to claim the same thing," she said. "That's when trade wars begin." The tariffs could result in higher prices for consumers on things such as automobiles, as manufacturers pass on the higher costs of raw materials from abroad. "It's going to take time to rebuild these industries," Peterson said. "You just can't reopen a smelting factory, especially if it was closed for years. It's going to cost something. You're going to have to hire people, pay them a competitive wage ... it could be inflationary." She said the tariffs do not mean that U.S. talks with Canada and Mexico to renegotiate the North American Free Trade Agreement would be scuttled because of Trump's action, and she still gives 60 percent odds to a new deal. The talks are in their seventh round this week, with negotiators meeting in Mexico. One sticking point is a U.S. demand for 50 percent U.S. parts in vehicles, and another is disagreement over how disputes would be resolved.

"Trade friction in and of itself has tended to be a market negative," said Julian Emanuel, chief equity and derivatives strategist at BTIG. The tariff headlines come at a time when China has come back into the foreground as a concern for investors for the first time in two years. Emanuel pointed to weaker-than-expected manufacturing data earlier this week. Marc Chandler, head of fixed-income strategy at Brown Brothers Harriman, said he does not see the potential tariffs as the start of a trade war, but the move would be a volley that could have implications for global trade. "They're citing national security. That's a legitimate claim at the WTO, but it hasn't been tested, and it will be tested. ... Every president has put on some tariffs and challenged other countries' trade practices. Unlike solar panels and washing machines, this has much broader implications. It's not just aimed at China, but our allies," he said. "Some of these actions are small in terms of the economic effect, but the political implications would be great. When other countries think of things we like to export to them and they could impose tariffs, that's the beginning of trade wars." Chandler noted President George W. Bush tried to impose steel tariffs but was rebuffed. He also said Trump has sent mixed messages, including signaling that he may now be interested in re-engaging in the 11-nation Trans-Pacific Partnership trade pact that he dropped out of after he was elected.

WATCH: What a potential trade war with China means for the markets