A Harsh New Reality for International Stock ETFs
- Trump announced sweeping “reciprocal tariffs” targeting nearly all of America’s trading partners.
- International stock ETFs are giving back some of their recent outperformance.
- What looked like a safe haven now seems just as vulnerable.
International stock ETFs are no longer the haven they seemingly were just a week ago.
Earlier this year, when President Donald Trump launched his new trade war by slapping tariffs on Canada and Mexico, global equities held up surprisingly well. As of April 2, the Vanguard Total International Stock ETF (VXUS) was up 6% year to date, even as the Vanguard S&P 500 ETF (VOO) was down more than 3%.
But that resilience quickly faded after Trump announced sweeping “reciprocal tariffs” targeting nearly all of America’s trading partners.
International Stock ETFs No Longer Insulated
Markets reacted sharply. VOO plunged 5% on Thursday and another 6% on Friday—a brutal two-day stretch reminiscent of pandemic-era volatility and the 2008 financial crisis.
VXUS also took a hit, falling 2% on Thursday and another 6% on Friday. The pain continued into this week, with the international fund underperforming U.S. stocks on Monday, dropping nearly 3% while VOO saw only a modest decline.
The selloff reflects a harsh reality: Even international markets are no longer seen as insulated from Trump's aggressive trade stance. His blanket tariffs—imposed across the board and accompanied by threats of further escalation—are fueling concerns of a broader global slowdown.
To be sure, international stocks are still outperforming their U.S. counterparts on a year-to-date basis. VXUS is down only 3%, compared to a 12% drop for VOO.
Regional ETFs Holding Up
Certain regional ETFs are even in the green. The iShares MSCI Eurozone ETF (EZU) is up 4% year to date, while the iShares MSCI Germany ETF (EWG) has gained 7%. Europe is seen as relatively well-positioned to weather a trade war, especially as countries ramp up fiscal spending on defense and infrastructure.
But not all international markets are faring as well. ETFs tied to smaller, more vulnerable countries have crumbled under pressure. The VanEck Vietnam ETF (VNM), which was up 11% as of April 2, is now down 8% on the year.
Meanwhile, Trump’s top target—China—has taken an even bigger blow. In just two sessions, the iShares MSCI China ETF (MCHI) erased a 16% year-to-date gain, underscoring how fast sentiment can flip when geopolitics drive the headlines.
