Stock Exchanging NAFTA for USMCA
If politicians are to be believed, the United States-Mexico-Canada Agreement (USMCA) is nearing ratification to replace the North American Free Trade Agreement (NAFTA). Big whoop, right? But there may be something in this for investors!
When Bill Clinton won the White House in 1993, his first priority was to push through a free trade agreement with friends north and south of the border. You see, when the US trades its petroleum for Mexico’s electrics, and Canada trades its maple syrup for American auto parts, taxes must be paid. We call these tariffs, and they’re there to protect industries at home. Clinton’s NAFTA got rid of those tariffs!
Some investors love it because it means more trade in general, cheaper products, and all three economies growing faster. Some investors hate it because it means American brands with nothing to lose by ditching local cities and moving away for cheap Mexican labor. There are no prizes for guessing which type of investor the US President is!
Mexico felt Trump’s wrath in 2017 and has done well to avoid walls and tariff slaps so far from Washington. Fearing for jobs at home, the leader of the free world has already waged an economic war with China and is against the Trans-Pacific Partnership as well. NAFTA was dead meat from the offset.
Filling its shoes, a “big, beautiful deal” called the United States-Mexico-Canada Agreement. It notes that any trade agreements between China and Mexico or Canada will have to go through the White House first, but otherwise, different name, same meaning. And the markets are mainly relieved about that. Sure, the US could have isolated itself with tariffs and assembled cars domestically, but as soon as local economies were boosted, stocks would’ve been dragged straight back by higher car prices rising faster than wage growth. Investors, you’re in the clear. Trade on!
