Investing

Termination of NAFTA

  • Last Updated:
  • Sep 3rd, 2018 11:42 pm
Tags:
[OP]
Sr. Member
Oct 21, 2016
938 posts
706 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
160 replies
Deal Addict
User avatar
May 11, 2014
4829 posts
5971 upvotes
Iqaluit, NU
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.
Support your local Credit Union!

Sask Pension Plan Upto $6600/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222
Deal Addict
Dec 3, 2014
2348 posts
1826 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.
Deal Addict
Jul 27, 2017
2180 posts
948 upvotes
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
Deal Addict
Jan 27, 2016
1486 posts
837 upvotes
Edmonton
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: 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
Penalty Box
Apr 23, 2017
298 posts
184 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 Expert
User avatar
Nov 15, 2004
19839 posts
3824 upvotes
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.
Deal Addict
Jan 20, 2016
2028 posts
1010 upvotes
Houston, TX
porticoman wrote: 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 face great again
[OP]
Sr. Member
Oct 21, 2016
938 posts
706 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 ?
Member
Aug 22, 2012
209 posts
130 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
2348 posts
1826 upvotes
Ontario
porticoman wrote: 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]
Sr. Member
Oct 21, 2016
938 posts
706 upvotes
Any Canadian ETF or Canadian stock adjustment needed in the portfolio ? Rebalancing to international American
Member
Aug 22, 2012
209 posts
130 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
2028 posts
1010 upvotes
Houston, TX
sherwoodRFD wrote: 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 face great again
Deal Addict
Jul 27, 2017
2180 posts
948 upvotes
sherwoodRFD wrote: 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.
[OP]
Sr. Member
Oct 21, 2016
938 posts
706 upvotes
So if Trump terminated NAFTA ias im sure Congress republicans will go with him on this one . Ending NAFTA and American protectionism putting their workers American first has populist support in USA. So no need to adjust portfolio ? Go with the flow ?
Deal Addict
User avatar
May 11, 2014
4829 posts
5971 upvotes
Iqaluit, NU
Shaun80 wrote: So if Trump terminated NAFTA ias im sure Congress republicans will go with him on this one then no need to adjust portfolio ? Go with the flow ?
You are an index investor. Pretty much ignore any news. Intervening is going completely against the strategy.
Support your local Credit Union!

Sask Pension Plan Upto $6600/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222
Deal Addict
Jan 20, 2016
2028 posts
1010 upvotes
Houston, TX
Shaun80 wrote: So no need to adjust portfolio ? Go with the flow ?
Short Canadian banks. Guaranteed profit!
Make the face great again
[OP]
Sr. Member
Oct 21, 2016
938 posts
706 upvotes
Ok so just ride out the storm yes I'm.an index investor . So I may have to prepare for a few bad years of Canadian equity but it should rebound once we find new trade partners or agreement with USa perhaps when Trump is gone and a democrat becomes president who will be less protectionist ? Is this kind of what to expect ?
Deal Addict
Jul 23, 2007
4500 posts
3114 upvotes
"There seems to be some perverse human characteristic that likes to make easy things difficult."

Warren Buffett

------------------------------------

I Don't Know, And I Don't Care

"Accepting that you don’t know — and can’t know — what the future holds should be liberating, not frustrating. But you must also not care that you don’t know. If not being able to know the financial future bothers you, then you will never be at peace with your ignorance, and you will live your investing life as a perpetual chase after the unobtainable. So the single most important word, in the seven magic words “I don’t know, and I don’t care,” is and. Saying it is easy; meaning it is a lot harder."

Jason Zweig

------------------------------------------

"Don’t even think about trying to extrapolate macroeconomic, demographic, and political events into an investment strategy. Say to yourself every day, ‘I cannot predict the future, therefore I diversify.’”

William Bernstein

--------------------------------------------

"Regardless of where you live, the key to building wealth in the stock and bond markets isn’t technical. It’s simple. Find creative ways to cut down on living costs. Differentiate between your wants and your needs. Cut down on the “wants” to emphasize the needs. Pay down high interest debts to invest in index funds. Ignore the stock market. Ignore market forecasts. Ignore fancy-dancy strategies. Just build a solid portfolio over time, rebalance it once a year, and get on with the things you love."

Andrew Hallam

Top