With markets attuned to inflation risk and with equity volatility rearing its head, President Trump’s tough talk on trade tariffs isn’t good news.

The president has threatened tariffs on aluminum (10%) and steel (25%) imports, with the effect likely being sharply higher domestic metals prices.

Douglas Porter, BMO chief economist, estimates in a weekly financial digest that CPI in the U.S. would be bumped 0.2 percentage points by the tariffs.

With stateside capacity in the fabricated metals space running close to full tilt, “there isn’t a lot of room for U.S. producers to ramp up production in the near term, so the tariffs will mostly get passed along in the form of higher prices across the board” for U.S. consumers, says Porter.

He adds: “Any U.S. manufacturer that uses steel and/or aluminum has just been handed a competitive punch to the gut, as their input costs rise in comparison to global competitors—e.g., automakers.”

Effects for equities, bonds and currency

Porter notes that the tariff talk hasn’t been good for markets, with stocks sagging when the news broke last week. Markets also had a weak start today.

Likewise, in a weekly economics report, CIBC chief economist Avery Shenfeld says, “Donald Trump has often used Wall Street as his scorecard, and American stocks haven’t exactly cheered his announcement on steel and aluminum. Neither have all the metal-consuming manufacturing industries that collectively employ more workers than either steelmaking or aluminum smelting.”

He says Republicans from affected states could respond negatively to the tariffs, leaving open the possibility of Trump reversing his tariff talk.

Read: Trump’s steel, aluminum tariffs unwelcome even among supporters

Shenfeld also says the Bank of Canada has a role to play in the face of potential negative trade policy, by easing off on the timetable for rate hikes.

For example, “If trade turns ugly, we’re going to have to tread gently on an indebted household sector to keep the economy in gear,” he says.

Read: Why the BoC will hold rates this week

In response to the drop in equities, bonds are benefiting only slightly.

Says Porter: “Trade wars are patently not a positive for bonds—true, trade spats may dampen longer-run growth, but they are even more negative for inflation.”

Even without the potential tariffs, an expected overshoot in inflation will add to interest rate risk, say TD economists Beata Caranci and James Orlando in a report on the U.S. economy. They’re referring to the risk that rates will rise more than expected, causing losses on Treasury holdings. “Rising rates in the U.S. will filter through to Canadian bonds due to tight correlations and a higher term premium,” they say.

For currency, the loonie and peso both slid almost 2% last week, as Canada and Mexico rank high on the list of U.S. metal suppliers. Further, tariff talk throws a wrench into ongoing NAFTA negotiations, says Porter.

Read: Country of the month: Mexico

Today, President Trump suggested tariffs on Canadian and Mexican steel are dependent on whether the countries agree to a new trade pact.

“We’re not backing down […]. Right now, 100% [chance we proceed with tariffs],” Trump said in the Oval Office. ”But it could be a part of NAFTA.“

Porter says Canada shipped a total of $24 billion of raw and processed steel and aluminum products to the U.S. last year—1.1% of domestic GDP.

“Suffice it to say that it is a very negative signal indeed from the country’s largest trading partner, for growth, inflation and the currency,” he says.

Read the full reports from BMO, CIBC and TD.