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United States-Mexico-Canada Deal Puts These ETFs in Focus

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On Aug 27, the United States and Mexico agreed on a new bilateral trade deal. And on Sep 30, the United States and Canada came to an agreement to form the new trilateral Trade Deal of the United States with Canada and Mexico, USMCA. This will rewrite North American Free Trade Agreement or NAFTA.

Trump had indicated in his campaign that he wants to renegotiate the North American Free Trade Agreement — or totally remove it. The agreement had tied up the United States, Canada and Mexico for more than two decades. The deal permitted manufacturers and farmers to do business smoothly.

The deal will allow U.S. dairy farmers access to 3.5% of the Canadian dairy market while capping Canada’s car exports to its southern neighbor. Canada has also agreed to limit its auto exports to the United States to 2.6 million vehicles. This will help it evade a 25% U.S. tariff on auto imports in case the Trump administration goes on to impose such a duty. The stated level crosses Canada’s current production level of around 2 million units.


Per analysts, one of the main beneficiaries to the deal is likely to be corn. This is because traders now expect the agricultural industry to benefit out of this USMCA deal. Since Mexico is one of the largest purchases of American corn, this soft commodity has rallied. Teucrium Corn ETF (CORN - Free Report) added more than 2.6% in the past two days (as of Oct 2, 2018) (read: Warm Weather is Nurturing These Agriculture ETFs).


Auto stocks were in a tight spot following Trump’s presidential victory. This was because Trump was expected to take stricter steps on immigration and outsourcing. Companies like Ford Motors (F - Free Report) and General Motors (GM - Free Report) outsource their car production to Mexico.

So, with problems apparently solved with Mexico, auto ETF CARZ gained after the U.S.-Mexico deal. Canadian auto suppliers also surged after the U.S.-Canada free-trade deal as it got rid of the auto tariffs. Investors should thus closely follow the movement ofFirst Trust NASDAQ Global Auto ETF (CARZ - Free Report) (read: Tit-For-Tat Tariffs Hurting U.S. Automakers: ETF in Focus).

Canadian Currency

Trump’s presidential win has been a pain for several foreign country investing, Canada being one. So, it is needless to say, the Canadian currency will benefit out of the new treaty.The Canadian dollar touched a four-month high against the U.S. dollar and investors wagered on nearly four additional interest rate hikes by the Bank of Canada by the end of 2019. Invesco CurrencyShares Canadian Dollar (FXC - Free Report) gained 0.8% since the treaty signed.


Though President Trump’s 25% tariffs on Canadian steel is still in place, the countries are believed to be negotiating to abolish those tariffs. VanEck Vectors Steel ETF (SLX - Free Report) , which tracks the overall performance of companies involved in the steel sector, added about 1.2% in the past two days (as of Oct 2, 2018).

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