Global Resilience: Why International Stocks Have Rallied Despite U.S. Trade Hostilities
By TMC Research Staff | The Milwaukee Company | tmcresearch@themilwaukeecompany.com
International stock markets have demonstrated an unexpected level of resilience in the face of escalating trade tensions. Despite the Trump administration's much touted protectionist policies—marked by increased tariff threats, renegotiation of existing trade agreements, and what many have called a confrontational approach to China, Canada, and Mexico—key global indices such as China’s NASDAQ OMX Technology Index and Hong Kong’s Hang Sen Index, France’s CAC 40, Germany’s DAX, the UK’s FTSE 100, and Brazil’s Bovespa have outperformed the S&P 500 year-to-date at the time of this writing.
This appears to run counter to conventional expectations, which assumed that aggressive U.S. trade policies would weigh heavily and generally negatively on global markets. Instead, it appears that multiple economic, financial, and policy-driven factors have contributed to international market resilience. A closer look at investor sentiment, monetary policy, corporate adaptability, currency fluctuations, and sectoral dynamics provides insight into why global equities have had a very strong start to the year, even as U.S. policymakers continue to push for trade restrictions.
Global Market Resilience Amidst Protectionism
The Trump administration’s swift decision to impose tariffs on steel, aluminum, and other key commodities was—and still is—widely expected by many to disrupt global supply chains, reduce trade volumes, and negatively affect stock markets worldwide. However, in anticipation of the announcement, instead of experiencing broad declines, many international indices have demonstrated surprising strength. Germany’s DAX index, which includes several industrial giants among its constituents, has risen almost 10% year-to-date, whereas the French CAC 40, which is more broadly diversified with global financial services and goods and services constituents, has risen by well over 8% YTD.
The UK’s FTSE 100, which is somewhat concentrated in banking, has also remained strong despite ongoing Brexit uncertainty, benefiting from a slightly weaker British pound that has made exports marginally more competitive. The Hang Seng Index has surged over 10%, propelled by a wave of investor optimism fueled by expectations of potential Chinese government stimulus measures aimed at bolstering economic growth. Additionally, the strong rebound in the technology sector, led by major companies such as JD.com and Alibaba, has further supported market momentum. Positive economic indicators, including signs of stabilization in key industries and improving consumer sentiment, have also contributed to renewed confidence, signaling a broader market recovery and attracting increased investment activity. While it may be too early to make a definitive pronouncement, it appears that rather than being derailed by U.S. trade policies, many international markets have capitalized on the shifting global economic landscape, finding alternative growth avenues and reinforcing their positions in key industries.
Investor Optimism and Change in Market Sentiment
Market sentiment appears to have played a critical role in counteracting the expected negative effects of trade disputes. Many investors believe that trade tensions, while serious, will ultimately lead to negotiated settlements rather than prolonged economic disruptions. They also perceive President Trump’s approach as more transactional and generally more open to dealmaking compared to previous U.S. administrations. This expectation has helped support global equity markets, as traders have been willing to look beyond short-term volatility in anticipation of long-term stability. Historical precedent suggests that many high-profile trade disputes end in some form of compromise, a belief that has shaped investor decision-making throughout the current standoff.
Additionally, markets have become increasingly sophisticated in processing trade-related news. While headlines announcing tariff increases or retaliatory measures often trigger short-term selloffs, these declines have frequently been followed by swift recoveries as investors reassess the long-term implications. This pattern has been evident in markets such as China’s NASDAQ OMX Technology Index, where stocks have rebounded strongly following periods of heightened uncertainty. The rally has also been buoyed by renewed investor interest in the Chinese tech sector, driven in part by the rapid international success of DeepSeek, a large language model (LLM) released earlier this year by a Chinese startup.
Furthermore, the recent 30-day reprieve in trade tensions between the United States, Canada, and Mexico appears to have reinforced this cycle, demonstrating how even temporary pauses in hostilities can restore investor confidence and contribute to market rallies.
Sectoral Dynamics and Economic Fundamentals
Not all industries have been affected equally by U.S. trade policies, and the performance of global stock indices reflects the fact that certain sectors are more insulated from trade disruptions than others. While industries that rely on complex international supply chains—such as automotive manufacturing—have faced and will likely continue to face challenges, other sectors have the potential to benefit from changing trade dynamics. In Europe, for example, domestic consumer goods companies have performed well, as stable household spending has helped offset trade-related headwinds.
In Japan, technology and industrial firms have adjusted to new trade dynamics by strengthening partnerships within Asia and securing alternative sources for raw materials. The technology sector, in particular, continues to be a key driver of international equity gains, fueled by growing demand for semiconductors, software, and cloud computing services.
China’s long-struggling technology sector may also be showing signs of recovery, as the CQQQ ETF, which tracks a basket of Chinese tech stocks, has outperformed the QQQ ETF, which tracks the NASDAQ 100 Index, by a factor of five (as we discussed in a recent article) year to date.
Additionally, rather than being severely disrupted by tariffs, investor sentiment suggests that many international companies are effectively mitigating their impact through strategic production shifts, supply chain diversification, and an increased focus on domestic markets. These adaptations may help sustain earnings growth despite U.S. trade hostilities, which, in turn, may have bolstered investor confidence, contributing to stock market gains across multiple regions.
In contrast with U.S. markets, which appear to be hovering at very elevated valuation levels—such as high CAPE ratios—many international markets look more attractive from a valuation standpoint. Moreover, most international markets are far less concentrated in technology stocks compared to the U.S., where the past two years of 20%-plus growth have been largely driven by massive price increases in tech stocks. This relative valuation gap may be another reason investors are turning toward international equities.
Monetary Policies and Central Bank Interventions
Central banks across the globe have taken proactive measures to counteract the negative economic effects of trade disputes. In response to the potential slowdown caused by tariffs, several major central banks have adjusted interest rates, provided liquidity support, and implemented policies to stabilize financial markets. These interventions have played a crucial role in preventing widespread economic disruptions and have supported strong equity market performance.
The European Central Bank, for example, has maintained accommodative monetary policies to ensure continued access to credit, while the Bank of Japan has only gradually raised rates to 0.5%—a level that, although high by recent Japanese standards, remains historically low. In emerging markets, central banks have employed a mix of defensive and stimulative measures to shield their economies from external shocks. Brazil’s central bank, for instance, has focused on maintaining financial stability amid fluctuations in commodity prices, helping to sustain investor confidence in the Bovespa index.
The coordinated efforts of central banks have ensured that trade tensions have not resulted in liquidity shortages or credit crunches, both of which could have caused more severe market dislocations. Instead, monetary authorities have successfully provided a buffer against economic uncertainty, allowing stock markets to continue rising despite ongoing geopolitical risks.
Corporate Agility and Supply Chain Reconfiguration
Companies have not remained passive in the face of trade challenges. In anticipation of U.S. tariffs—long touted by President Trump since he was on the campaign trail—many multinational firms have actively restructured their supply chains to reduce exposure to U.S.-imposed trade restrictions. This has included relocating manufacturing operations to countries not directly targeted by tariffs. By diversifying production bases and exploring new market opportunities, corporations have effectively mitigated the risks associated with protectionist policies.
Some firms have also shifted their focus toward domestic markets, capitalizing on strong consumer demand within their home countries. This approach has been particularly successful in China, where domestic consumption has increasingly driven economic growth. Similarly, Japanese firms have strengthened regional trade ties within Asia, reducing their reliance on U.S. trade flows. These strategic adjustments have helped safeguard profit margins to some extent, though if trade hostilities with the U.S. escalate, these gains could be reversed.
The sustained gains in international stock markets amid trade tensions challenge the notion that aggressive U.S. policies would inevitably lead to global economic instability. The ability of markets in countries as diverse as France, Germany, Brazil, and others to outperform the S&P 500 underscores the resilience of global financial systems and the adaptability of both investors and corporations. Strong economic fundamentals, supportive monetary policies, favorable currency movements, and strategic corporate adjustments have all contributed to this resilience.
While trade disputes remain a source of uncertainty, their impact on global markets has been more nuanced than initially anticipated. Investors have increasingly turned to foreign equities as a hedge against U.S.-centric risks—particularly market concentration, stretched valuations, and potential institutional decay, as regulatory bodies in the U.S. face restructuring or dissolution. Meanwhile, companies have leveraged innovation and flexibility to navigate the evolving economic landscape. As trade negotiations continue, these trends are likely to persist, reinforcing the importance of a diversified, globally oriented investment strategy. The coming months will determine whether international markets remain buoyant or if further disruptions emerge, but for now, global equities have demonstrated remarkable resilience against even the most aggressive trade policies.