Dollar snaps losing streak as new import taxes kick in on goods worth $16 billion on either side of the Beijing and Washington DC dispute. Australian dollar fumbles for a second straight day as the country's PM faces leadership crisis.
World stocks came under pressure on Thursday as new tariffs took effect in the US-China trade war and markets speculated about US President Donald Trump's position following legal rulings against two former advisers.
The MSCI world equity index, which tracks shares in 47 countries, was 0.1 percent lower by 1116 GMT, while a rise across tech and energy stocks helped Europe's STOXX 600 eke out a 0.1 percent gain.
Stocks were subdued as the US and China, despite ongoing talks, implemented 25 percent tariffs on $16 billion worth of each other's goods.
The world's two biggest economic powers have now slapped tit-for-tat tariffs on a combined $100 billion of products since early July, with more in the pipeline, adding risks to global economic growth.
Caroline Simmons, deputy head of the UK chief investment office at UBS Wealth Management, cited such concerns as a reason for paring back an overweight on global equities to a very small position.
"We've got trade conflicts and sanctions, in Turkey and Russia, so there are a few things going on that we were a little nervous about," Simmons said, though her firm still saw upside to equity markets, with good fundamentals.
The auto sector, particularly sensitive to tariff developments, was the worst performing in Europe, down 0.9 percent.
Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.2 percent. Hong Kong's Hang Seng index stumbled 0.5 percent while Chinese blue-chips gained 0.4 percent.
While investors are looking ahead to see how increasing trade barriers between China and the United States might affect corporate earnings, political turmoil also weighed on the stock markets.
Trump's former lawyer Michael Cohen pleaded guilty to campaign finance violations on Tuesday and former campaign manager, Paul Manafort, was found guilty on charges of tax and bank fraud.
Investors are considering whether the twin setback will hurt the president and his Republican Party's prospects in mid-term elections.
That weighed on Wall Street overnight and the market ended mixed despite the S&P500 clocking its longest bull run in history.
E-Minis for the S&P 500 were also subdued on Thursday, trading flat.
Cohen's plea deal does not mean the president has been implicated in anything, press secretary Sarah Sanders said at a White House briefing.
"While the [legal issues] shouldn't substantially alter the stock market landscape, money managers and analysts say the developments raise the likelihood of further turbulence ahead for Mr Trump heading into the mid-term elections," said James McGlew, Perth-based analyst at stockbroking firm Argonaut.
Political tensions were not limited to the United States.
Australian shares slipped 0.3 percent after several senior ministers tendered their resignations on Thursday and demanded a second vote on Prime Minister Malcolm Turnbull's leadership.
The Australian dollar fell 0.8 percent for its second straight day of declines.
The political uncertainty helped the dollar snap a five-day losing streak, with the greenback in demand after the Federal Reserve suggested that a rate hike for September was on the cards.
The dollar index, which measures it against a basket of major currencies, gave up some earlier gains but still added 0.1 percent to 95.238, pulling off its lowest in three weeks.
The euro was off 0.1 percent at $1.1580, not far from Wednesday's two-week high of $1.1623. The Japanese yen weakened 0.2 percent to 110.77 per dollar.
A stronger dollar put pressure on commodities. US gold futures for December delivery fell 0.5 percent while spot gold dipped 0.4 percent to $1,190.49 an ounce. Copper slid 0.9 percent.
Oil prices clawed back earlier losses. Brent crude, the international benchmark, traded flat at $74.79 while US crude rose to $67.97.