US Investors On Edge as International ETFs Surge
While tariffs weigh on US stocks, international ETFs are defying expectations.
President Trump’s latest tariff moves sent U.S. markets lower this week, with the SPDR S&P 500 ETF Trust (SPY) slipping into negative territory. As of midday Thursday, SPY was down more than 2% on a year-to-date basis.
Investors are on edge. Trump’s 25% tariffs on Canada and Mexico, his 20% tariffs on China and his proposed 25% tariffs on the European Union have raised concerns about slowing U.S. economic growth. Yet, despite the pressure on U.S. stocks, ETFs tied to Trump’s biggest trade war targets have shown resilience—with some even posting significant gains.
The iShares MSCI Canada ETF (EWC) and the iShares MSCI Mexico ETF (EWW) are up 0.2% and 10%, respectively, this year. Funds tied to China and Europe have performed even better: The iShares MSCI China ETF (MCHI) has surged 21%, while the Vanguard FTSE Europe ETF (VGK) has climbed 14%.
3 Reasons International ETFs Are Up
Why are international stock ETFs holding up so well?
- One explanation is that these markets may be better positioned to weather trade tensions since they are primarily dealing with a single adversary—the U.S.—while the U.S. is engaged in disputes on multiple fronts.
- Government stimulus could also play a role. Germany recently announced a €500 billion infrastructure package to boost its economy, while China has been ramping up fiscal support. Meanwhile, in the U.S., there’s no comparable effort underway. Instead, the Department of Government Efficiency has focused on slashing federal spending rather than increasing it.
- Valuations may be another factor. U.S. stocks have significantly outperformed international markets over the past decade, pushing relative valuations to historic highs. This year’s selloff could simply be a recalibration of that imbalance.
Some believe international stocks are entering a long-overdue cycle of outperformance after years of lagging behind the U.S. Others argue that if Trump manages to secure new trade deals, sentiment could quickly shift back in favor of U.S. stocks—especially if investors refocus on the administration’s business-friendly policies, such as tax cuts and deregulation.
One thing is certain: Uncertainty remains high. Markets are struggling to price in Trump’s unpredictable tariff strategy and, even if a deal is reached, the damage to business confidence may already be done.
