I rarely post and mainly lurk in other boards, but I wanted to post this question here...

I was in a discussion last week about tariffs and the idea of poor returns from international investing came to mind. Dating to before the financial crisis, returns from international investing have generally lagged US markets. Even the law of averages would have had some more of the last 17 years show better returns in developed or developing markets than US markets. Instead, we've heard some version of, "The US market is where it's at this year" or even "US market is the best of bad options."

I admit that I was blind to the level of tariffs that American products face around the world. I guess I just thought we have been living in a free trade world.

So, here's the question: Do the tariffs that other countries charge basically take the 'juice' or profit margin away from business, lowering overall profitability and thus, returns, of companies based there? Is our trade deficit funding the run in stocks since 2009? Will reciprocal tariffs or dropping all tariffs change this situation?

Horse with No Name said:

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So, here's the question: Do the tariffs that other countries charge basically take the 'juice' or profit margin away from business, lowering overall profitability and thus, returns, of companies based there?

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They generally have the same impact that any tax would have on the imported good. They raise the cost of the imported good which is either (i) passed on to consumers, (ii) eaten by the selling company (lower margin), (iii) shift consumption from imports to internal/substitute products or (iv) a decrease in consumption of the product. The answer is usually a combination of all.

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Is our trade deficit funding the run in stocks since 2009?

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I would attribute it more to low interest rates, technology bringing more people into the stock market, and large government deficits.

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Will reciprocal tariffs or dropping all tariffs change this situation?

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A change in tariffs will change both economies, but the magnitude depends on the specific tariff and product. Some countries have "protective tariffs" on products in which they already have a comparative advantage. For example, Brazil has a tariff on coffee imports and the largest importer of Brazilian coffee is the US. If the US imposes a reciprocal tariff, the impact will be some combination of an increase in US consumer prices, a move to coffee/substitute products from other countries, and a decrease in US consumption. If tariffs are dropped completely from both countries, I would expect minimal impact. Perhaps there is a minimal increase in coffee imports for some sort of specialty product.

In theory, from an impact on currency perspective, higher tariffs would strengthen the dollar (by weakening the demand for foreign currencies), decrease foreign investment, and decrease exports.

International stocks underperform US stocks mainly because America has the greatest individual freedom and protected property rights of anywhere in the world. Look at China for instance. Jack Ma was the richest person there and Xi disappeared him for almost 5 years. China's millionaires want out of there. Europe has high taxation including the VAT and never ending regulations. Canada's rules and regs and taxes are oppressive too. There is a reason the top half of Canada's graduating doctors come to America to practice.

I was afraid the USA's advantage was going to be completely destroyed by Obama/Biden but Trump will MAGA and restore our advantage. In a word, it's our freedom that produces superior results.

I still have allocation in international funds but we haven't contributed anything new to it in a few years.