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American investors are pumped about a new record high in the S&P 500 stock index. Meh. It’s actually not much to brag about.
South Korean stocks also hit new highs recently, and they’re up 37% so far this year. German stocks are up 28%. Mexican stocks, up 27%. The gain in Hong Kong is 20%. All foreign stocks combined are up about 15%.
The big 2025 gain American stock investors are celebrating? A paltry 5%.
That modest gain is obviously better than the dismal April sell-off that followed President Trump’s April 2 announcement of sweeping “reciprocal tariffs” on imports from dozens of countries. Within a few days of that depressing news, US stocks were down 16% for the year. Trump blinked and postponed most of those tariffs till July 9. There’s a good chance he’ll postpone the deadline again as it draws nigh.
The US stock market has clawed back Trump-induced losses as Trump has modulated his tariff demands. When Trump took office in January, the average tax on imports was around 2.5%. The reciprocal tariffs would have raised that to around 28%, high enough to force price hikes on millions of consumers, dent corporate profits, and possibly cause a recession.
While Trump postponed the reciprocal tariffs, he left in place a bunch of others, including a new baseline tariff of 10% on most imports; a 30% tax on most Chinese imports; additional tariffs on steel, aluminum, automotive products and a few other things. The average tariff is now around 15%.
Read more: 5 ways to tariff-proof your finances
US stocks got back into positive territory for the year in May, and they’ve drifted upward since then. Investors have basically decided they can live with the Trump tariffs as they are now. Growth will be slower and inflation higher, but investors’ collective assessment is that the public companies that comprise the US stock market will largely be able to protect their profit margins.
Yet the longstanding allure of American stocks has vanished during Trump’s second term. “The first half of 2025 is a case study on why investors should consider international diversification,” investing firm Charles Schwab advised in a recent analysis. “US stocks have underperformed international stocks so far this year amid unpredictable and uncertain policy moves in the U.S. The second half of the year may see continued volatility and international stock market leadership could remain a trend.”
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Trump says foreign countries pay his tariffs, which is patently untrue. Investors know that, part of the reason US stocks are floundering. American importers pay the tariffs to the US government the moment they receive a foreign shipment. Those businesses bear the cost of the higher tariffs right away. Then they pass on as much of the higher cost to their own customers as possible, all the way to ordinary consumers.
