ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Gold/Silver/Critical Minerals
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Modern Alpha
    • Night Effect
    • Portfolio Strategies
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • Company
    • About VettaFi
    • Get VettaFi’ed
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. ETF Industry
  2. The Upcoming NAFTA Renegotiation and Its Impact on Equity Markets
ETF Industry
Share

The Upcoming NAFTA Renegotiation and Its Impact on Equity Markets

Sam BourgiAug 29, 2017
2017-08-29

Efforts to renegotiate the North American Free Trade Agreement (NAFTA) are officially underway, with officials setting an aggressive timeline for resolution. Naturally, investors are looking to determine how the negotiation process will impact their portfolios.

For all the debate it inspires, NAFTA has profoundly reshaped North American trade. Over its 23-year history, trade between the United States, Canada and Mexico has quadrupled, leading to a far more integrated North American economy. In the process, NAFTA achieved its primary objective of integrating Mexico’s emerging economy with those of its northern industrialized peers. Even in the U.S., a nation that is often critical of NAFTA, overall employment, foreign direct investment (FDI) and GDP have expanded since 1994.

Although NAFTA has largely benefited all countries involved, it has led to a widening of the U.S. merchandise trade deficit with its northern and southern neighbors. This, combined with the loss of manufacturing jobs, prompted U.S. President Donald Trump to call for a complete rewrite of the landmark agreement. This means the Trump administration is looking for much more than a simple tweak of the trade rules and more of a complete overhaul on issues ranging from dispute settlement to rules of origin.

Renegotiating NAFTA also has practical benefits, such as ensuring that trade rules accurately reflect the evolution of the global economy over the past two decades. Adopting a common framework on digital trade is on the agenda, but it will attract far less controversy than the areas highlighted above.

How has Donald Trump’s early presidency impacted investor portfolios? Check out Market Catalysts: Trump’s Victory to learn more.

Impact on Investors

Investors with exposure to North American equities have the most to gain or lose from the NAFTA renegotiation. This is especially true for holders of exchange-traded funds (ETFs). There are currently more than 1,000 North American ETFs traded in the U.S. markets with total assets under management exceeding $2.2 trillion.

ETFs with exposure to finance, telecommunications, natural resources and agriculture could be the most impacted by the new NAFTA deal, as these are the main sectors being targeted by the Trump administration. The largest ETF in the group, the SPDR S&P 500 ETF Trust (SPY A), will also be impacted both by the negotiation and the final deal, as the large-cap index has broad exposure to the U.S. economy.

Mexico ETFs are also expected to face volatility as the negotiations heat up. In fact, recent evidence suggests that Mexican equity markets have already been affected by negative rhetoric concerning Mexico.

The iShares MSCI Mexico Capped ETF (EWW A), the largest exchange-traded fund tracking Mexican stocks, was negatively correlated to President Trump’s controversial comments regarding Mexico and his plan to erect a massive border wall with his southern neighbor. This correlation stretches all the way back to last year, when the EWW fell 10.3%. By comparison, the MSCI Emerging Markets Index (EEM A-) gained nearly 11%. Since the start of August, EEW has lost around $84 million in assets, a sign that investors are growing weary over NAFTA. For a more comprehensive comparison between EEM and EWW, check out the ETF Database Head-To-Head Comparison tool.

In an increasingly globalized economy, protectionism is usually met with resistance by investors. Any deal that limits the movement of trade or reduces the integration of all three economies could negatively impact ETFs with broad exposure to North American stock markets.

For a full list of North American ETFs, click here.


Content continues below advertisement

What Each Country Wants to Take Away From the NAFTA Renegotiation

Although it is generally believed that Canada and Mexico want to limit changes to the existing NAFTA protocol, the Trump administration’s hardline approach will prompt contentious dialogue on several fronts. President Trump has already targeted Canada’s softwood lumber and dairy industries, and could go after Mexican agricultural subsidies. The U.S. also wants more access to its neighbors’ banking and telecommunications industries, something the original NAFTA deal failed to accomplish.

Below is a list of each country’s trade goals. As you can see, many of the objectives are shared by all three NAFTA members. The main differences are Washington’s desire to eliminate or reduce the trade deficit, tighten rules of origin and prevent currency manipulation.

U.S. NAFTA Goals:

  • Maintain free trade
  • Reduce the trade deficit
  • Abolish dispute-resolution mechanism
  • Improve labor and environmental standards
  • Improve trade mechanics
  • Tighten rules of origin
  • Prevent currency manipulation
  • Promote small- and medium-sized businesses

Canada’s NAFTA Goals:

  • Maintain free trade
  • Increase access for business travelers
  • Improve labor and environmental standards
  • Improve trade mechanics
  • Include gender rights

Mexico’s NAFTA Goals:

  • Maintain free trade
  • Increase access for business travelers
  • Improve labor and environmental standards
  • Improve trade mechanics
  • Promote small- and medium-sized enterprises
  • Include gender rights

The Bottom Line

The first round of NAFTA negotiations concluded in Washington on August 20. Mexico will play host to round two of negotiations September 1-5. Equity investors can expect negotiations to resume well into next year, as officials continue to target a final deal before the Mexican election in July 2018.

NAFTA negotiations are just getting started. To keep track of the latest developments from an ETF perspective, subscribe to our free newsletter.

» Popular Pages

  • Tickers
  • Articles

Mar 24

Markets Bounce in Wake of Banking Crisis and Rate Hike

Mar 24

Main Management Market Note: March 24, 2023

Mar 24

Meet an Advisor: Ramona Maior

Mar 24

Tobin McDaniel: ETFs Crucial in SoFi's Growth

Mar 24

Semiconductors Spark Investors’ Hope

Mar 24

Take a Look at EWCO, RYT, and RCD

Mar 24

VettaFi Voices On: The Fed's Next Steps On Rate Hikes

Mar 24

ETF Issuer League: 7% Jump for Barclays

Mar 24

Opportunity Knocks With KWEB

Mar 24

To Access High Dividend International Stocks, Use IDOG

QQQ

Invesco QQQ Trust

SPY

SPDR S&P 500 ETF Trust

VOO

Vanguard S&P 500 ETF

VGT

Vanguard Information...

SMH

VanEck Semiconductor ETF

XLK

Technology Select Sector SPDR...

VTI

Vanguard Total Stock Market...

SOXX

iShares Semiconductor ETF

BLOK

Amplify Transformational Data...

META

Roundhill Ball Metaverse ETF

Loading Articles...
Help & Info
  • Contact Us
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X