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.”
NEW YORK, NEW YORK – JUNE 23: Traders work on the floor of the New York Stock Exchange during morning trading on June 23, 2025 in New York City. Stocks opened slightly up as the market reacts to the U.S. striking three nuclear sites in Iran over the weekend, raising fears of an increase in oil prices. (Photo by Michael M. Santiago/Getty Images) ·Michael M. Santiago via Getty Images
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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.
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From March through May, the US government collected $46 billion in import taxes, 283% more than during the same period in 2024. Trump’s tariffs could easily bring in an additional $300 billion per year. Administration officials brag about the new revenue the tariffs are bringing in, but they don’t bother to point out that these taxes raise costs for American businesses and consumers.
The US stock market has thoroughly trounced global stocks since 2015, and especially since the COVID pandemic that arrived in 2020. Massive amounts of fiscal and monetary stimulus during the pandemic rapidly bounced the US economy out of recession and led to a robust recovery unmatched by any other large economy. US tech firms still dominate in artificial intelligence and other trends leading stocks higher. So the US market’s weak performance in 2025 could be a temporary blip.
Yet longer-term fissures are also driving global investors out of the US market. America’s massive national debt, now more than $36 trillion, has started to cause wobbles in financial markets. Instead of dealing with the problem, Republicans who control Congress are poised to pass a package of tax cuts likely to add yet another $4 trillion to the debt.
Read more: What is the US debt ceiling, and how does it impact you?
At some point, there will be so much Treasury debt flooding the market that there won’t be enough buyers. That will force the Treasury to pay higher interest rates, making the whole problem worse. All other interest rates will rise in unison, raising borrowing costs throughout the US economy. No wonder all three major ratings agencies have now downgraded the US credit rating, with Moody’s being the last to do so in May.
There have already been instances in recent months when US interest rates rose in circumstances where they’d normally be dropping. That alone triggered a “sell America” trade in which investors ditched American assets in favor of foreign ones. The value of the US dollar, correspondingly, has weakened by 10% so far this year as demand for dollar-denominated assets weakens.
One curiosity of the sell America trade is that countries Trump is targeting most aggressively with tariffs are still outperforming American stocks. Mexican stocks are beating the US market by 23 percentage points in 2025. European shares are beating their US counterparts by 15 points. Chinese stocks are doing 13 points better. Again, that reflects investor belief that the Trump tariffs will hit US profits more than foreign ones.
To some extent, foreign stocks are catching up with an American market that has been investors’ favorite for a decade. But Trump’s tariffs could change the equation indefinitely. America isn’t quite last, but it definitely isn’t first.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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