What impact would new tariffs have on global risk appetite?

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New Tariffs Could Significantly Dampen Global Risk Appetite

New tariffs on Chinese goods are poised to significantly impact global risk appetite, potentially leading to a downturn in investor confidence. While specific details on the precise mechanisms of this impact are not elaborated upon, the general economic principle suggests that increased trade barriers can disrupt established supply chains and create uncertainty, which often translates into a more cautious stance among investors. This heightened sensitivity to trade-related news means that any indication of escalating trade disputes could trigger a notable decline in the willingness of investors to take on risk across financial markets.
Investor Sensitivity to Trade Deal Progress

Investors are closely monitoring developments in the US-China trade negotiations, particularly in anticipation of a December 15 deadline for potential new US tariffs on Chinese goods. Positive signals regarding an imminent "phase one" trade deal could foster a more optimistic market environment, potentially benefiting Asian currencies. Conversely, any indication that further tariffs are likely to be imposed would deal a significant blow to overall risk appetite.
Broader Economic Implications of Tariffs

Tariffs, as a tool of trade policy, can have wide-ranging effects on global financial markets. By increasing the cost of imported goods, they can lead to higher prices for consumers and businesses, potentially reducing demand. Furthermore, tariffs can disrupt international trade flows, affecting the profitability of companies reliant on global supply chains. This economic uncertainty and potential for reduced corporate earnings typically lead investors to reduce their exposure to riskier assets, such as stocks and emerging market currencies, in favour of safer investments like government bonds.
Influence of External Factors on Currency Performance

Despite positive domestic economic data, such as Malaysia's industrial production figures consistently showing expansion since February 2013, external factors are expected to be the primary drivers of the ringgit's performance. The ongoing US-China trade discussions, along with other global geopolitical events like the UK elections, create a landscape of uncertainty. In such an environment, central banks like the US Federal Reserve and the European Central Bank are anticipated to maintain their current monetary policy settings, adding to the prevailing cautious sentiment in financial markets.

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What impact would new tariffs have on global risk appetite?

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