What's going on?
On Sunday, the US and Canada agreed upon a new trade deal – along with Mexico – to replace the North American Free Trade Agreement (NAFTA), and stocks around the world rose on Monday (tweet this).
What does this mean?
The US and Mexico reached a trade agreement in August, leaving Canada’s part up in the air. Its deadline was September-end – and Canada agreed to terms in the nick of time. The new deal – complete with new name and five-letter acronym, the United States-Mexico-Canada Agreement (USMCA) – will replace 24-year-old NAFTA, which allowed the US, Mexico, and Canada to trade several products freely (i.e. without tariffs) with one other.
As part of USMCA, Canada will give the US greater access to its dairy market (worth $16 billion annually). And more car parts must be made in parts of North America that pay workers at least $16 per hour (aimed at shifting low-paying car jobs from Mexico into Canada and the US).
Why should I care?
For markets: Stocks ascend, light and carefree.
Stocks worldwide felt the weight of impending tariffs lift off their shoulders some – giving them breathing room in which to rise. USMCA avoids tariffs on the trading of a lot of goods across country borders, which is good news for companies’ profits – and, by extension, their share prices. Canada and Mexico are two of the US’s biggest trading partners, so it’s positive for all countries that they appear to be getting along.
The bigger picture: The US is a tough negotiator.
One issue that wasn’t resolved in the new deal is the US’s tariffs on Mexico and Canada’s steel and aluminum exports. The US has made friends with Europe – the two are planning negotiations. But its dizzying beef with China continues – last month the US imposed tariffs on $200 billion of Chinese products. China responded with more tariffs of its own, and US is planning even higher tariffs in January as a countermeasure.