NEW YORK (Reuters) - Investors are bracing for a looming hit to U.S. corporate profits and pressure on inflation if President Donald Trump makes good on his tariff threats, with markets seen as not fully factoring in risks from higher levies on foreign imports.

President Donald Trump is vowing to issue tariffs as soon as Saturday on Canada, Mexico and China, the three largest U.S. trading partners.

As the tariff deadline nears, investors have been trying to gauge whether the potential duties on imports might be a negotiating tool, as Trump and members of his administration have addressed the topic over the past week.

"It's adding a lot of volatility to expectations because of the back and forth and the rhetoric on a daily basis," said Leo Harmon, chief investment officer at Mesirow Equity Management.

Harmon said he expects some level of tariffs to be implemented with the market reaction dependent on the extent of the duties.

"If those tariffs come in higher than expectations... there could be a potential for a day or two of risk-off leadership in the market," Harmon said.

Trump has set a Saturday deadline for issuing 25% tariffs on imports from Mexico and Canada, unless they move to halt flows of illegal immigrants and the deadly opioid fentanyl into the United States. He has also said he would impose a 10% tariff on Chinese goods over that country's role in the fentanyl trade.

Reuters reported on Friday, citing people familiar with the planning, that Trump is expected to announce tariffs against Canada and Mexico that will begin on March 1, but will include a process for the countries to seek specific exemptions for certain imports. However, Reuters reported, the situation remained fluid and no decision is final until Trump makes a public announcement.

Barclays strategists estimate that the tariffs could lead to a 2.8% drag on S&P 500 company earnings, including the projected fallout from retaliatory measures from the targeted countries.

"You're having global supply chains that are going to have to be reworked or rethought," said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management."It can increase cost structures for companies."

Some tariffs will be passed on to consumers in the form of higher prices, LPL Research analysts said earlier this month.

Goldman Sachs economists have estimated that across-the-board tariffs on Canada and Mexico would imply a 0.7% increase in core inflation and a 0.4% hit to gross domestic product.

The potential to drive up consumer prices is a particularly sensitive area for investors, who are worried about a revival in inflation causing the Federal Reserve to stop cutting interest rates. The U.S. central bank this week paused its rate-cutting cycle, while Fed Chair Jerome Powell said officials were "waiting to see what policies are enacted" with the new president.

Gene Goldman, chief investment officer at Cetera Financial Group, said he expected weakness in equity markets if Trump goes through with tariffs this weekend.

"The combination of high valuations ... and the inflation-inducing effect of tariffs and the consequent effect on Fed policy would cause stocks to sell off," Goldman said.

Jim Smigiel, chief investment officer at SEI, said markets could start factoring in the possibility of interest rate rises if tariffs set off inflation.

"The non-zero probability of a hike I think has crept into investors' minds," Smigiel said.

With the S&P 500 near all-time highs, the index could move 3% to 5% in either direction in the short term, depending on what Trump announces with tariffs, Evercore ISI strategists said in a note.

Colin Graham, head of multi-asset strategies at Robeco in London, said the firm was debating closing a position in long-duration Treasuries before the weekend.

"This is one of these big geopolitical events that you can't predict," Graham said. "They just happen and you have to figure out afterwards what you're going to do."

Some Wall Street analysts said the potential tariffs appeared to be being used more as a negotiating tactic.

"I think Trump is more bark than bite, and is trying to use the threat of penalties to hammer out better trade agreements with our major partners," said Talley Leger, chief market strategist at The Wealth Consulting Group.

Investors had braced for Trump to move swiftly to implement tariffs when his second term began on Jan. 20, and the lack of tariffs so far has been a relief for markets. Tariffs are seen as one of the more negative potential policies for stocks countering benefits stemming from Trump's expected pro-growth agenda of reduced taxes and regulations.

BCG Global Chief Economist Philipp Carlsson-Szlezak said 25% tariffs on Canada and Mexico "would be a jolt."

But, he said, "it would also at least bring some clarity of, how does the administration want to play tariffs?"