A trade war hasn’t quite started yet, but it’s already escalating in terms of threats, counterthreats and rampant chestpounding.

In retaliation for President Donald Trump’s promise last week to impose stiff tariffs on imported steel and aluminum, the European Union threatened to slap tariffs on a whole series of U.S. products, from Harley-Davidsons to Kentucky bourbon.

The president shot back that he might retaliate with tariffs on imported cars.

And now they’re at each other’s throats again, this time with the European Union throwing the blows across the Atlantic.

The EU announced on Wednesday it’s going to take the case to the World Trade Organization.

It’s going to throw up defenses to protect the European Union against steel diverted from the United States. (It’s unclear exactly what it means by that.)

And it’s going to impose tariffs on a whole series of American-made goods.

It seems last week the list of U.S. goods in its crosshairs was pretty short. Harley-Davidsons, Kentucky bourbon and the like.

Now it’s getting a lot longer. Steel. T-shirts. Bed linen. Chewing tobacco. Cranberries. Orange juice. And many more.

It’s still only $3.5 billion in trade, which is a fraction of cross-Atlantic trade. But the number is growing.

Just the Beginning of a Trade War

Brazil, Canada, Japan, South Korea and other major U.S. allies could soon follow with similar tariffs.

And those are just America’s allies.

China and Russia may not say much initially. But don’t let that fool you. The longer they wait, the more serious their reaction is likely to be.

What does that do to stocks?

Wall Street pundits are virtually unanimous in their verdict: It’s not good for the economy, profits and investors. That’s why the market tumbled late last week.

And the only reason it recovered this week is because Wall Street hoped that maybe Trump might back down at the last minute.

I don’t always agree with Wall Street pundits. And sometimes I vehemently disagree.

But this is not one of those cases.

No matter how you slice and dice the data, it’s almost impossible to chart a roadmap that takes trade wars to a good place. Even if the United States ultimately wins the war.

It could be a barroom brawl that never ends. The cowboys punch and counterpunch all night long until they’re all sprawled out on the floor, practically dead to the world.

1 More Kind of War

You remember the last time the stock market plunged earlier this year. I know. How could anyone forget?

And I assume you also remember what triggered it: Falling bond prices, and the fear of rising interest rates.

Well, a trade war is, in its initial stages at least, inflationary because it drives up import prices. That isn’t going to make the threat of higher interest rates go away. It’s going to make it worse.

What’s more, while nations are already in the mood to throw bricks at each other, another weapon they could pull out from their arsenal is competitive interest-rate hikes. A rate war!

Country A wants to attract scarce short-term foreign money. So, it hikes its lending rates.

Country B wants to keep that money within its borders or go after new money in global money markets. So, it hikes its lending rates even more.

Before you know it, interest rates are leapfrogging each other all over the globe.

How Trade Wars Hit Stocks

There is a long list of stocks vulnerable to trade wars.

Ford Motor Co. (NYSE: F), which was already hurting due to earnings disappointments, is feeling the pain. And General Motors Co. (NYSE: GM) is trading at its lowest level since last September.

But the victims are not just companies that consume steel or aluminum. Any U.S.-based multinational that relies on exports could be in deep doo-doo during an all-out trade war.

Plus, there’s an even longer list of companies vulnerable to interest-rate wars.

Shares of homebuilders, real estate investment trusts (REITs) and mortgage lenders are already sinking.

Lennar Corp. (NYSE: LEN), for example, has just sunk from around $72 per share to the high 50s today.

D.R. Horton Inc. (NYSE: DHI) is down from $53 and change to $43 and change today.

And these 20%-plus declines are just since the beginning of the year!

Don’t be surprised if big banks get slammed next.

Good thing our Money and Markets editors are sticking with companies that can continue to deliver big profits despite any trade war, including alternative investments that benefit from most of these trends.

Like gold, silver, energy and energy metals.

Even cryptocurrencies.

See you next week!

Good luck, and God bless!

Martin D. Weiss, Ph.D.

Founder, Weiss Ratings