Despite new tariffs announced by President Trump, the S&P 500 has climbed 5% since July, while legal challenges mount and investors weigh global ETF options with recent double-digit returns and broad diversification
U.S. stocks have continued to rise in the face of President Donald Trump's latest round of tariffs, with the S&P 500 gaining 5% since the measures were announced in late July. While the administration's new tariffs target imports from 60 countries, the market's muted reaction suggests investors are looking beyond the immediate policy risk and focusing on global growth prospects. At the same time, legal opposition is intensifying, as at least 25 states have filed lawsuits to block the tariffs, and nonprofit groups are challenging the administration's authority to impose such sweeping trade measures without congressional approval.
The Supreme Court's February decision, which overturned a previous set of Trump tariffs, clarified that the president cannot unilaterally impose broad tariffs for any reason, reinforcing Congress's constitutional role in tax and trade policy. Although the administration cites "forced labor" concerns as justification, critics argue that the evidence supporting these claims remains thin. The legal and political uncertainty adds another layer of complexity for investors considering international exposure.
Market Reaction and Investor Behavior
Unlike the sharp sell-off that followed the "Liberation Day" tariffs in April 2025, the latest round of tariffs has not rattled equity markets. The S&P 500's 5% gain since July 23 reflects a degree of investor confidence in the resilience of global trade and corporate earnings. Many market participants appear to be discounting the likelihood that the new tariffs will survive ongoing legal scrutiny, especially given the Supreme Court's recent stance on executive authority in trade matters.
For investors seeking to diversify beyond U.S. stocks, international exchange-traded funds (ETFs) remain a practical option. These funds offer exposure to thousands of companies across developed and emerging markets, allowing investors to spread risk and participate in global economic trends. According to reporting by Financial Sumo, sector ETFs can sometimes mask concentration risk, but broad international funds are designed to provide more comprehensive diversification. A recent analysis highlights how some sector ETFs may not be as diversified as investors expect, underscoring the importance of understanding fund composition.
Comparing Two Vanguard International ETFs
The Vanguard FTSE All-World ex-US ETF (VEU) offers exposure to more than 3,800 stocks outside the United States, spanning both developed and emerging markets. Over the past three years, VEU has delivered an annualized return of 17.3%, with a one-year total return of approximately 28.5% as of the most recent reporting period. The fund's top holdings include semiconductor companies in Asia and Europe, as well as major international banks and pharmaceutical firms. However, over the longer term since its 2007 inception, VEU's annualized return is 5.56%, trailing the S&P 500's historical average.
For those who want global diversification without excluding U.S. equities, the Vanguard Total World Stock ETF (VT) holds more than 10,000 stocks, with about 62% allocated to U.S. companies and 38% to international markets. VT's three-year annualized return stands at 18%, and its one-year total return is roughly 22.3%. The fund's international exposure is concentrated in countries such as Japan, Taiwan, the United Kingdom, Canada, and South Korea. Since its 2008 launch, VT has produced average annual returns of 8.8%, which is lower than the S&P 500 but higher than VEU's long-term performance.
Legal and Policy Risks for Global Investors
The ongoing legal battles over the new tariffs create uncertainty for investors with international holdings. If courts ultimately strike down the tariffs, as they did with previous measures, the impact on global trade flows and corporate earnings could be limited. On the other hand, if the tariffs are upheld, companies with significant international operations may face higher costs and supply chain disruptions, potentially affecting fund performance. Investors should also consider currency risk, as fluctuations in the U.S. dollar can influence the returns of international ETFs.
Expense ratios are another factor to weigh. Both VEU and VT offer low-cost access to global markets, with VT's expense ratio at 0.06%. While past performance has been strong in recent years, future returns will depend on a range of factors, including global economic growth, trade policy, and the outcome of ongoing legal challenges. As always, diversification does not eliminate risk, and investors should align their international allocation with their overall financial goals, risk tolerance, and investment horizon.
International ETFs are structured to track broad market indexes, but their performance can diverge from U.S. benchmarks due to differences in sector composition, regional growth rates, and currency movements. Investors should review each fund's holdings, geographic exposure, and historical volatility before making allocation decisions. Understanding the underlying index methodology and the potential impact of policy changes can help investors manage expectations and avoid surprises in periods of market stress.
