Quantcast

ETFs to Watch if U.S. Pulls Out of NAFTA


Shutterstock photo

From his campaign days, Trump has indicated that he wants to renegotiate the North American Free Trade Agreement (NAFTA) or totally remove it. The agreement had tied up the U.S., Canada and Mexico for more than two decades. The deal permitted manufacturers and farmers to do seamless business (read: Welcome Trump Era with These ETFs ).

Now, this agreement may be threatened as Trump intends to bring jobs offshored to countries like Mexico back to America. Rumors are rife that President Donald Trump will announce that the United States will walk out of NAFTA during his State of the Union address , as per the source.

Against these circumstances, we highlight the ETF areas that should be closely watched (read: ETFs to Watch On NAFTA Talks ).

Mexico and Canada

Analysts from Goldman Sachs noted that "exports to Mexico account for just 1% of U.S. GDP. Similarly, revenues to Mexico and Latin America total just 3% of S&P 500 sales." While it makes up just a fraction of the U.S. economy, NAFTA specifically represents substantial portions of Mexico and Canada's GDP.

"Trade has jumped sharply between the United States and Mexico since NAFTA's signing, from roughly $290 billion in 1993 to more than $1.1 trillion in 2016. That compares to the $650 billion in bilateral trade the U.S. did with China last year," as per a note issued by Deutsche Bank analysts.

So, the adverse impact on Canadian and Mexican currency is expected. Guggenheim CurrencyShares Canadian Dollar Trust ETF FXC may be hit hard. U.S. foreign direct investment in Mexico jumped from $15 billion to more than $100 billion from 1993 to 2016.Needless to say, these issuesdo not go well with country ETFs like  iShares MSCI Mexico Capped EWW and  iShares MSCI Canada ETF EWC .

Auto

A huge portion of U.S. trade deficit with Mexico is from the auto sector. Goldman Sachs also indicated that the S&P 500 auto component companies have returned about 52% and electronic equipment firms have offered investors 51% returns compared with 36% provided by the S&P 500 on average. Now, these auto stocks may fall flat if the United States walks out of NAFTA. So, First Trust NASDAQ Global Auto ETF CARZ will be in focus.

Timber

Already, U.S. President Trump announced plans to slam a tariff of up to 24% on imports from the Canadian softwood lumber industry. The Trump administration indicated that it would levy countervailing duties ranging from  3% to 24.1%  on Canadian lumber producers, as reported by  Bloomberg (read: ETF Winners and Losers on Trump's Canadian Timber Tariff ).

Along with  several traders , we also believe the action, if it materializes, may lead lumber prices to scale up as lumber imports from Canada will now become costlier. And domestic lumber companies may also be able to charge some price premium in the face of lesser foreign competition. However, Canada has filed a wide-ranging case with the World Trade Organization -- over those and other tariffs that the United States has levied. iShares S&P Global Timber & Forestry Index Fund WOOD thus comes under focus.

Want key ETF info delivered straight to your inbox?

Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.  Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

ISHARS-MEXICO (EWW): ETF Research Reports

ISHARS-CANADA (EWC): ETF Research Reports

ISHARS-GL TF (WOOD): ETF Research Reports

FT-NDQ GL AUTO (CARZ): ETF Research Reports

CRYSHS-CDN DOLR (FXC): ETF Research Reports

To read this article on Zacks.com click here.

Zacks Investment Research

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , ETFs
Referenced Symbols: EWW , EWC , WOOD , CARZ , FXC


More from Zacks.com

Subscribe






Zacks.com
Contributor:

Zacks.com

Equity Research








Research Brokers before you trade

Want to trade FX?