Why Trump's tariff chaos may be good for non-US stocks

American 100 dollars destroyed by bad markets

(Image credit: Getty Images)

published 22 April 2025

The Trump tariff chaos and the broader sense that the world is changing profoundly makes it hard to remain optimistic at times like these. There’s a temptation to retreat to safe assets – such as cash or gold – which may well turn out to be the smart call in the shorter term. Yet there is a bullish way to think about these changes as well. They may end up being part of a long-overdue adjustment – just not quite in the way that the US president and his advisers hope.

America has dominated global markets to an unhealthy extent over the past decade or more. The degree to which it has beaten almost everything else is striking: the MSCI USA index has returned 12.4% per year (in dollar terms) over ten years, while the MSCI World ex USA has returned 6% per year. There have been some solid reasons from this, ranging from America’s superior energy security after the shale revolution in the early 2010s to the greater dynamism of high-growth sectors (helped by capital markets that were willing to fund and scale up new companies in a way that the rest of the world was not). However, this cannot continue forever.

The US market trades at a large premium to the rest of the wold. The MSCI USA is on a forecast price/earnings ratio of around 20 times, the MSCI World ex USA on around 14 times. It may well still deserve some of that premium – but it cannot continue to expand the difference and keep outperforming. What’s more, to the extent that higher valuations reflected a superior business environment up until now, the premium may need to be smaller in future. Erratic policy making and weakening of the rule of law will surely make America a less attractive and more uncertain place to do business. It would be hyperbole to say that it now looks like an emerging market, but that contains a grain of truth: recent events are what you expect to see in a rather ineptly managed and somewhat autocratic country, rather than the lynchpin of the global order.

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Two benefits for the rest of the world

If investors become a little more sceptical about the USA, it may benefit other markets in more than one way. The most obvious and immediate benefit is that a bit more cash going into the UK, Europe, Japan or emerging markets rather than America will – at the margin – help raise valuations there.

The more subtle and long-term benefit is the counterpoint to the Trump administration’s belief that the US trade deficit means that the rest of the world is simply harming America. After all, an alternative way to think about the real damage caused by this imbalance is that America’s capital surplus (the necessary offset to the current account deficit in the balance of payments) sucks in capital from the rest of the world, starving economies, markets and start-ups of investment.

While the US market was doing better, this was a rational decision for investors, but one that arguably created a virtuous cycle for America and a vicious cycle for other economies. If less capital now flows to the US, it may be good for growth elsewhere, which in turn will be good for earnings and create another tailwind for non-US stocks.

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Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.