Following Trump's tariffs, US stocks are now more costly than before

We don't have to question the impact of Trump's tariffs to believe that the rest of the world provides better value

Investors worried that we were about to enter a sudden and severe bear market when Donald Trump started revealing his tariff plans in April. Worldwide, stocks plummeted, with the US losing 10% in just two days. The decline, however, was brief because stocks rose just as quickly as they had fallen. New heights have been reached by the US and other significant international markets. So, are investors too optimistic now, or did they get rattled too easily?

On the plus side, the agreements the United States is making with trading partners appear to be less harmful than everyone initially thought in April. Yes, tariffs are undesirable. They increase expenses and complicate international trade. The entire supply chain connecting US consumers and foreign exporters will bear those costs to differing degrees. However, the risks of a more extensive and destructive trade war are still decreased by these agreements.

According to the pessimistic perspective, America's perceptions of the rest of the world have evolved. In order to become exclusive and mercantilist, it is renouncing the values it has supported for decades. Policymaking is more capricious and uncertain. Since these agreements are still only general frameworks, we cannot even be sure that they will be upheld, let alone what may occur over the next three and a half years and beyond.

Global stocks versus US stocks.

As a result, the rest of the world is responding sensibly. To minimize immediate disruption, nations are negotiating with the US; however, in the long run, they will need to acknowledge that the world is changing. Alliances and trade patterns will change. To avoid being singled out, CEOs are also attempting to appease Trump by declaring significant investments in the US. Pharma companies are demonstrating this frequently in an attempt to deflect the threat of high import tariffs. However, it is still unclear how much of the investment that was already planned will be inflated and how much will actually come to pass.

We'll be examining how all of this might unfold at our upcoming annual BFIA Wealth Summit, Turmoil, Tariffs and Trump 2.0, on November 7 (tickets are now available at BFIAwealthsummit . co . uk/2025). However, there is a clear concept for controlling these risks in terms of the stock market.

Depending on which index you follow, US stocks now account for 6070% of the global market, having outperformed the rest of the world over the last 15 years. Superior earnings growth has been the main driver of this, but valuations have also changed significantly more than many investors realize.

MSCI Europe trades at 14 times forecast earnings, while MSCI USA trades at 23 times. The divergence accelerated around the middle of 2016, when the MSCI USA was trading at 17 times forward earnings and the MSCI Europe at 15 times. Therefore, finding a better balance between the US and the rest of the world than a standard global tracker fund doesn't have to involve placing a wager on whether Trump's policies will ultimately harm the US. This is becoming more and more justified given the widening valuation gap.

MSCI Europe versus MSCI USA.