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Termination of NAFTA

  • Last Updated:
  • Oct 16th, 2017 9:49 pm
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[OP]
Newbie
Oct 21, 2016
56 posts
3 upvotes

Termination of NAFTA

How will the termination of NAFTA particular free trade between Canada and USA affect each countries economy for better and for worse . What affect will it have on Canadian and US equities . Will it affect your north American stock / or ETF portfolio for index investors short and long-term . Will growth be slower or even negative for years to come
28 replies
Deal Addict
User avatar
May 11, 2014
1699 posts
708 upvotes
Iqaluit, NT
Easy, general answer: overall negative for equities long-term. Longer term trade protectionism reduces trade and thus cash flow output throughout the economy. While protectionism didn't cause the great depression, many economists believe that it was a factor in prolonged slumps in many countries.

The correct or likely-correct answer: It will definitely cause an immediate downturn in particular with financials, and many industrials such as automakers, parts makers, shipping, etc. mostly due to fear of the unknown. We saw this with Brexit. The bigger problem though is how the termination will be executed. My likely guess is that it is going to take the US administration a while before anything becomes dismantled. I can't just see a sudden jump in tariffs without hurting actual companies on both sides of the border even if they are meant to protect the country that is imposing them. If anything, so much trading and manufacturing is now intertwined that it will take a long time before they can figure out how to impose tariffs without causing pain for business. Remember, Canada, US and Mexico are much more intertwined economically than UK and the rest of Europe.

My guess is either

1) It doesn't happen for a long time, and there is questioning about whether it actually happens
2) Or it is done hastily with little to no thought on the consequences (which is a bigger possibility with Donald Trump in comparison to Theresa May in the UK)

Regardless of the outcome, business sentiment will drop either due to lack of confidence due to too many unknowns or literal pain due to tariffs being passed down to consumers.

So in other words, if it indeed occurs, there will be some negative pressure on shares. There will likely be a recovery of some sorts as it may not really be immediately dire. This has been seen in British markets of late. There was a tremendous downfall due to fears about the effects that Brexit will have, but political paralysis and process will likely delay the true outcome over many years.

Regardless of how it will play out, the thing that should be remembered is that we cannot control political outcome. What you can control is the overall safety and planning of your finances. Investing in good, quality companies with great management and balance sheets is your biggest margin of safety.Otherwise, investing in indices is also pretty safe: regardless of outcome, the economy adjusts to new realities, and time will allow things to recover more or less.
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Deal Addict
Dec 3, 2014
1040 posts
183 upvotes
Ontario
Above is wise and accurate, I will simply note I have noticed since nearly one year ago when Trump was elected that none of the risk of a potential NAFTA renegotiation has been priced in, and I’m talking mostly Canadian stocks since you know we’ll end up with the short end of the stick and are very reliant on our export economy.

Consequently I have stayed clear of some stocks that I otherwise liked the look of. SJ.TO comes to mind. If you are an index investor I wouldn’t sweat it too much. It’s just noise unless you aren’t properly balanced e.g. you should only have 1/3 in TSX anyway.
Member
Jul 27, 2017
499 posts
139 upvotes
GTA
to add to post #2

Donald Trump wants jobs in America. Cancelling/terminating NAFTA could also mean Trump pulls American interest out of Canada, so anything made in Canada that is US owned could be taken back south, just as he implied doing to Mexico. The auto industry would be my first pick. Think of all the spin off jobs from the auto industry is huge.

Our Dollar would tank

Canada could apply for EU membership ... just a thought
Jr. Member
Jan 27, 2016
199 posts
105 upvotes
Toronto, ON
Ok that's a lil crazy

If NAFTA is finished all that would happen is USA and Canada would enter and build their own agreement. If you think states that do HUGE business with our Provinces are just going to sit back and listen to their federal government, that's nuts. This is all political B.S, everyone is trying to claim a win here, all in all I expect some changes but nothing major...remember Canada can easily create better and more deep agreements with Europe, Asia...plus we also have what the entire world needs to survive, resources!

porticoman wrote:
Oct 12th, 2017 6:52 am
to add to post #2

Donald Trump wants jobs in America. Cancelling/terminating NAFTA could also mean Trump pulls American interest out of Canada, so anything made in Canada that is US owned could be taken back south, just as he implied doing to Mexico. The auto industry would be my first pick. Think of all the spin off jobs from the auto industry is huge.

Our Dollar would tank

Canada could apply for EU membership ... just a thought
Jr. Member
Apr 23, 2017
103 posts
45 upvotes
Only way this ends badly for Canada is if Trudope really screws things up. Trump is mainly upset with China and Mexico. As long as Canada doesn't try to side with them we should be fine.
Deal Guru
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Nov 15, 2004
14256 posts
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Toronto
If it happens it means all the American jobs currently in Canada will be headed straight to China, India, Mexico, the Philippines, the Caribbean, and other low-cost areas with sufficient labor forces. Canada's trade with the US will likely be replaced by trade with Europe, China, and India.
Could HAVE, not could OF. What does 'could of' even mean?
Deal Addict
Jan 20, 2016
1433 posts
554 upvotes
Houston, TX
porticoman wrote:
Oct 12th, 2017 6:52 am
to add to post #2

Donald Trump wants jobs in America. Cancelling/terminating NAFTA could also mean Trump pulls American interest out of Canada, so anything made in Canada that is US owned could be taken back south, just as he implied doing to Mexico. The auto industry would be my first pick. Think of all the spin off jobs from the auto industry is huge.

Our Dollar would tank

Canada could apply for EU membership ... just a thought
Donald could WISH to rip off NAFTA, but he could NOT do it without Congress (which will NOT do it with 99% probability). Just remember to separate a bluff used in negotiations from reality...
Look what happened to travel ban, ripping OBAMACARE...

EVEN if this happened, the old CUSFTA should be back as it was superseded by NAFTA
In 1987, both countries agreed to the Canada-United States Free Trade Agreement (CUSFTA). Negotiations toward a free trade agreement with the U.S. began in 1986. ... The Canada-U.S. Free Trade Agreement was brought into force on January 1, 1989 and is superseded by NAFTA, which includes Mexico.
In short term, yes, that could mean more volatility mostly in USD/CAD FX imo. In long term it's not a deal breaker.

P.s. about 20+ US states voiced their concern about worsening trade with Canada. DO not forget they have more "balanced" political system in US. NOBODY getting cart blanch for 4 years as Junior did - they have every 2 years elections to Congress, besides the local elections, so even the hard-core Republicans already concerned about Donald as it hurts their chances and their +2 majority could easily be gone in next year...
Make the Trudeau drama teacher again!
[OP]
Newbie
Oct 21, 2016
56 posts
3 upvotes
So if the termination proceeds would you decrease your allocation of your Canadian ETF and or certain Canadian stocks and switch to more American international and emerging markets ?
Newbie
Aug 22, 2012
98 posts
79 upvotes
Mark Town
Throughout the US history, Congress always stands behind the Present in major events, as long as they belong to the same party. Millions of Americans are not happy with the current trade situation and believe that US is taken advantage.

I do not think that there is immediate economy down tend. Like BrExit the TSX may go down for a few months then backup.

That being said, I believe that Trump will get what he wants from Canada and Mexico eventually.
Deal Addict
Dec 3, 2014
1040 posts
183 upvotes
Ontario
porticoman wrote:
Oct 12th, 2017 6:52 am
Canada could apply for EU membership ... just a thought
I’m firmly against that. We can enter into new trade ageeements without becoming a European peon
[OP]
Newbie
Oct 21, 2016
56 posts
3 upvotes
Any Canadian ETF or Canadian stock adjustment needed in the portfolio ? Rebalancing to international American
Newbie
Aug 22, 2012
98 posts
79 upvotes
Mark Town
If USA terminates NAFTA, China will offer some deals to make the loss; and Canada will clinch on.
Deal Addict
Jan 20, 2016
1433 posts
554 upvotes
Houston, TX
sherwoodRFD wrote:
Oct 12th, 2017 11:23 am
Throughout the US history, Congress always stands behind the Present in major events, as long as they belong to the same party.

Did you watched the latest obamacare saga? With Republicans senators obstructing POTUS initiatives? And with byelections in Senate and House every two years not all of them happy with current POTUS

P.s. current POTUS do not belong to same party in term of support within this party, so I'd not bet on blind support from Congress on his (radical) initiatives. Specifically with NAFTA, many Congress members already vocalized they would not support pull-off from NAFTA
Make the Trudeau drama teacher again!
Member
Jul 27, 2017
499 posts
139 upvotes
GTA
sherwoodRFD wrote:
Oct 12th, 2017 12:01 pm
If USA terminates NAFTA, China will offer some deals to make the loss; and Canada will clinch on.
Wouldn't that be the day that Canadians could get 'computers, smart phones, clothing, steel, glass, cars & produce' cheaper than what we pay for it from the United States or Mexico.

A sweet direct trade between Canada, Mexico, China, Korea, Japan & the EU. The Americans can go screw themselves. Then again ending NAFTA won't be in place before Trumps demise. Wait see, it will be back to normal.

Trump has to get past (survive) the mid-term elections in 2018.

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