Last Friday, it looked unlikely that America and Canada would reach the September 30th deadline to make a trade deal. But it happened on Sunday night.
The action on Monday makes perfect sense as the Dow increased 0.73% and the Russell 2000 fell 1.39%.
America and Canada came close to their previous deadline. These negotiations were never as contentious as they still are between America and China. The S&P 500 was up 0.38% and the Nasdaq fell 0.11%. They all lost some of the initial pop on the news early in the trading session.
This is big news regardless of the stock market’s reaction because Canada is America’s 2nd largest trading partner. It appears the S&P 500 didn’t rally that much because investors anticipated this getting done.
The new deal includes Mexico, Canada, and America. It is called USMCA. It replaces NAFTA which was in place for 24 years. In the deal with Canada, Canadian leaders will be granting American dairy farmers more access to its markets.
Canada will also cap vehicle exports to America. Personally, I don’t think this deal will have a major impact on America’s deficit with Canada. I also don’t think the deficit is a problem.
America had a $21 billion trade deficit with Canada in 2016, meaning it’s nowhere near the size of the deficit with China.
Since this deal exists in the age of the internet, it modernized business by adding provisions on digital trade and intellectual property. The deal is going to be reviewed every 6 years.
Canada also gave up the right to negotiate a free trade deal with China. Another reason the stock market may not have rallied is the steel and aluminum tariffs are still in effect with Canada and Mexico.
Now that this deal is done, it gives America momentum to come to an agreement with China. America has the upper hand but is asking for more intellectual property reforms. This makes a deal more difficult to achieve.
Trade Deal – Quotes From Manufacturing ISM Report
