Why a trade war could dent 401(k)s

President Trump says trade wars “are good and easy to win.” Wall Street fears a trade war. A Google search of “trade war” nets 23.8 million results.

What exactly is a “trade war” anyway? It is “a situation in which two or more countries raise import taxes ... to try to protect their own economies,” Cambridge Dictionary says. It’s not a military fight; it’s an economic brawl.

Can such a skirmish impact your investments? It depends on how much the protectionist rhetoric heats up — and whether Trump, who already has slapped tariffs on coal and aluminum entering the U.S, delivers on threats to target specific countries, including ones with economic clout such as China, says Luca Paolini, chief strategist of Londonbased Pictet Asset Management.

Trump is currently using the imposition and threats of import taxes as a “negotiating tactic” to help gain concessions from trading partners and get a better deal for the U.S., Paolini says. But that strategy can “backfire.”

If Trump goes ahead and taxes more imports to the U.S. and other countries — especially China — retaliate by placing tariffs on U.S. goods entering their countries, things could get ugly.

“The risk is if everyone goes after everybody else and the world’s major trading partners can’t agree on the rules,” Paolini says.

Strangling free trade will slow growth, cause higher inflation and hurt investor and business confidence. The tipping point for markets will be when a powerful trading partner strikes back at the U.S.

“You need retaliation,” Paolini says.