Key Points

One year ago, President Trump introduced a tariff policy referred to as "Liberation Day." This policy imposed high tariffs on numerous trading partners, triggering significant sell-offs in international financial markets. Market observers told CNBC that Trump's tariffs prompted investors to reassess their asset allocations towards the United States.

On April 2, 2025, US President Trump appeared in the White House Rose Garden to announce a measure that would become one of the signature policies of his second term. The President unveiled an extensive list of tariffs targeting various countries, naming it the "Liberation Day" trade policy—a move that sparked global market panic and severe volatility. The policy included imposing high tariffs on imports from many trading partners: a 34% increase on Chinese goods, 20% on EU goods, and 46% on Vietnamese goods. Subsequently, a broad sell-off occurred across global asset classes—US stocks, Treasury bonds, and the US dollar were all hit hard, evolving into a "sell America" trading theme. In the 12 months following "Liberation Day," US assets experienced multiple rounds of volatility due to Trump's unpredictable policy mix—giving rise to various trading trends such as "All But USA" (ABUSA). Since the announcement of Trump's "Liberation Day," benchmark indices in countries like Brazil, the UK, and Japan have outperformed the S&P 500, benefiting from investors—particularly overseas investors—seeking diversification and reducing over-reliance on US returns. Subsequently, the US government reached a series of trade agreements with major partners like the EU, the UK, India, and Switzerland, lowering some tariff rates. However, in February of this year, the US Supreme Court ruled the tariff mechanism illegal, after which a judge ordered the government to prepare to pay billions of dollars in refunds to importers who had already paid the tariffs. Last month, Trump initiated "Section 301 investigations" against more than ten trading partners, including China, the EU, Japan, Switzerland, and India, paving the way for the White House to impose import tariffs on these economies. He had previously imposed a 10% "global baseline tariff" on imports, which the government stated would be raised to 15%. "Tariffs and aggressive trade tactics, questioning of Federal Reserve independence, current military involvement in Latin America and the Middle East, and military deterrence regarding Greenland, combined with high US stock valuations and soaring federal deficits, are prompting investors to re-examine the 'American exceptionalism' narrative," one analyst said. The analyst added that the so-called "reciprocal tariffs" announced by Trump last April "took trade policy to a new level." It was noted that while both stock and bond markets disapproved of the policy, markets rebounded quickly when Trump partially rolled back the tariffs. "However, investors appear to be seriously considering how to allocate capital in a post-'Liberation Day' world where presidential social media posts carry significant weight politically, economically, and militarily." "US stocks may have rallied strongly from their 'Liberation Day' lows, but they are no longer the default destination for capital as they were for much of the time after the 2009 financial crisis. In other words, it's no longer 'America first, everyone else second'." Analysis from AJ Bell showed that since "Liberation Day," the returns of the Shanghai Composite, Korea's KOSPI, and Japan's Nikkei 225 have all been higher than those of the three major US stock indices, with emerging markets "leading the pack." Data from AJ Bell last year indicated growing investor interest in global funds excluding the US, with investors "consciously avoiding the US market" when selecting new investment funds. Daniel Casali, Investment Strategy Partner at London investment firm Evelyn Partners, told CNBC that, calculated in pounds sterling, the MSCI USA Index has risen 14% since "Liberation Day" on April 2 last year, underperforming the MSCI World Index (up 18%). "The relative weakness of US stocks may reflect the impact of Trump's 'America First' policies—policies which have prompted Europe to increase defense and infrastructure spending as part of broader fiscal stimulus. Expectations that the US growth premium over Europe will narrow also support European market valuations compared to the higher-valued US market—especially against a backdrop of increasingly unpredictable White House decision-making." He added, however, that while underweighting US stocks has been profitable over the past year, it does not mean US underperformance will persist long-term. "The US economy has a robust history of growing faster than other major developed economies over the long term, providing domestic companies with greater potential for revenue growth," he said, adding that the US remains a leader in innovation. "Ultimately, the key to investing is diversification—a balanced allocation to US stocks alongside other global markets." Nigel Green, CEO of deVere Group, told CNBC that a year after "Liberation Day," the S&P index "still delivers returns," but the structure of capital flows has changed. He pointed out that while capital has not completely fled the US, "the flow of incremental capital is crucial"—with allocations to India, Japan, and parts of Southeast Asia increasing noticeably. Green also emphasized that institutional investors are seeking to hedge against concentrated US policy risk. "Investors no longer view the US as a single opportunity; they are selecting sectors that benefit from policy tailwinds and avoiding those affected by trade disruptions." "'Liberation Day' accelerated market fragmentation. On one hand, companies aligned with domestic production, artificial intelligence, and energy security are attracting capital; on the other, globally-oriented firms with complex supply chains face greater scrutiny and, in some cases, valuation compression." Green added: "American exceptionalism still exists, but it is no longer a given." "Asset allocators are now conducting more rigorous comparative analysis; assessing governance, policy clarity, and currency risks across regions. The US remains core, but now has to work harder to compete for capital." Dorian Carrell, Head of Multi-Asset Income at Schroders, noted that recent developments—including uncertainty around the Iran conflict, stress in the private credit sector, and high capital expenditure in AI—are driving international investors to rethink. "A year after 'Liberation Day,' the formerly synchronized, policy-driven environment is giving way to one more focused on domestic priorities and geopolitical friction, making policy coordination harder to predict." Carrell said that some data suggests "investment opportunities appear skewed towards sectors and regions outside the US," with Europe and Japan standing out from a pure valuation perspective. "Looking ahead, concerns about private credit, equity market concentration, rapidly evolving business models, and a steepening yield curve all suggest that moderate diversification and reduced US exposure is a prudent strategy. While the US still offers highly attractive opportunities, we believe other markets have priced in more uncertainty."