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Mexico Tariff Plan Dropped: ETF Areas to Win

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In late-May, President Donald Trump announced tariffs on all goods imported from Mexico in order to curb illegal immigration only to suspend his plans of a 5% tariff on Mexican goods “indefinitely” on late Friday. The announcement of a rollback in tariffs came after Mexico agreed to strengthen immigration enforcement. Global stocks should be the beneficiaries of this pact.

Against this backdrop, we highlight some ETF investing areas that could see at least a short-term bounce.

Mexico

Mexico has always been considered a Trump-unfriendly investment since the President’s campaign days. Mexican peso nosedived to an all-time low after Trump's victory in the U.S. presidential election in November 2016.

“Mexico is America’s third-largest trade partner, with $346.5 billion in goods imported from Mexico in 2018, according to the U.S. Trade Representative,” as quoted on marketwatch.com. So, with tariffs put on hold, iShares MSCI Mexico Capped ETF (EWW - Free Report) could be up for gains (read: How Bad Are Trump Tariffs for Mexico ETFs?).

Auto

Several auto companies have manufacturing hubs in Mexico. Companies like Ford Motors (F - Free Report) and General Motors (GM - Free Report) outsource their car production to Mexico. The country is also a regional manufacturing hub for major Japanese and South Korean automakers that assemble and export cars from Mexico to the United States. So, with retreating trade tensions, auto stocks and ETF First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report)  may see a nice of spell of gains.

Consumer

Be it China or Mexico, tariff war means higher costs for U.S. companies, which will likely be passed on to consumers. Per Bloomberg, Trump’s tariffs have already erased the $930 average tax cuts for average Americans. This is because Chinese and Mexican tariffs could have cost them about $4,000 tax hikes. So, in the absence of Mexico tariffs, consumer ETFs like iShares U.S. Consumer Services ETF (IYC - Free Report) and SPDR S&P Retail ETF (XRT - Free Report) should gain.

Transportation

U.S. transportation stocks are highly dependen on Mexico. That is why the Dow transport index fell 2% just after Trump announced the Mexico tariff on May 31. Notably, rail operator Kansas City Southern (KSU), derives a big chunk of its revenues from Mexico, per Reuters. So, the fund iShares Transportation Average ETF (IYT - Free Report) is up for gains following the incident. Apart from rail stocks, the fund also includes package delivery companies FedEx Corp FDX and United Parcel Service (UNP - Free Report) and airlines stocks like United Continental Holdings (UAL - Free Report) .

Energy

Within the energy sector, Exxon Mobil XOM and Chevron CVX are in a vulnerable spot because of their refining presence in the Gulf of Mexico. A potential 5% tariff on refiners like Marathon Petroleum MPC and Valero VLO could easily eliminate most of the companies’ margins, per analysts. VanEck Vectors Oil Refiners ETF (CRAK - Free Report) should thus benefit (read: Pain or Gain Ahead for Oil & Energy ETFs?).

Corn

Since Mexico is one of the largest purchases of American corn, this soft commodity and Teucrium Corn ETF CORN may be another good investment options (read: Top and Flop ETFs of May).

Global Stocks

With tariffs threats taking backseat, clouds of uncertainty will disperse over the global stocks to some extent. All-world ETF iShares MSCI ACWI ETF (ACWI - Free Report) and U.S. ETFs like SPDR S&P 500 ETF SPY, SPDR Dow Jones Industrial Average ETF (DIA - Free Report) and Invesco QQQ Trust QQQ should thus gain in the near term.

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