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Tags: stocks | nafta | trump | trade | deal

Auto, Pharma Stocks to Benefit From Trump's New NAFTA Deal

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Prasit Rodphan | Dreamstime.com

By    |   Monday, 01 October 2018 05:15 PM EDT

General Motors and Ford are among a handful of household corporate brands seeingly stand to gain the most from President Donald Trump's trade deal with Canada and Mexico to replace NAFTA.

Trump touted the new deal as a “historic” win that vindicated his strategy of threatening tariffs on trade partners, Bloomberg reported.

“Without tariffs, we wouldn’t be talking about a deal -- just for those babies out there that talk about tariffs,” Trump said Monday in a Rose Garden ceremony marking a successor deal to the North American Free Trade Agreement.

Trump called the accord “the most important trade deal we’ve ever made by far.” He predicted the renamed U.S.-Mexico-Canada Agreement, or USMCA, would “easily” pass Congress after he signs it by late November.

The new agreement makes modest revisions to a trade deal Trump once called a “disaster,” easing uncertainty for companies reliant on tariff-free commerce among the three countries.

Economists, trade attorneys and businesses are still parsing the agreement, but here is a look at some of the major industries and stocks in each that stand to gain from the deal.


"The automotive sector looks to be a clear early winner, as the threat of debilitating tariffs and interrupted trade networks eases," The Globe and Mail proclaimed.

The new three-country pact would require auto makers to build a greater portion of a car in North America and with higher-wage workers to avoid duties when a car crosses borders, The Wall Street Journal reported. That would be a relative win for Detroit’s Big Three auto makers, which rely heavily on factories in Canada and Mexico for the U.S. market and can now move forward with factory investments with greater clarity, WSJ.com explained.

General Motors Co. (GM) applauded the deal, saying it has long supported efforts to modernize the existing free-trade pact among the three countries. “This agreement is vital to the success of the North American auto industry,” the auto maker said in a statement.

Ford Motor Co. (F) said it is "very encouraged" by the agreement likely to remove significant uncertainty from automakers who feared a collapse of trading rules.

Among other potential winners are auto-part makers, such as Lear Corp. (LEA),  the Globe and Mail reported.


Farmers and agribusinesses also welcomed the agreement, as it would likely preserve tens of billions of dollars in farm goods traded annually across the countries’ borders, the Journal explained. It also should prompt the U.S., Canada and Mexico to each remove tariffs on one another’s products that have hurt U.S. prices for pork, cheese and other foods.

If approved by lawmakers in each country, the new pact would deliver a victory for companies such as Archer Daniels Midland Co. (ADM) and Tyson Foods Inc. (TSN), as well as farm groups which have sounded alarms over the tariffs’ economic hit to the U.S. Farm Belt, The Wall Street Journal reported. 

Tyson, the biggest U.S. meat processor by sales, urged “approval of a new deal and the removal of retaliatory tariffs and other trade barriers so that U.S. farmers and companies like ours can continue to expand in these important markets,” a spokesman said.


The new trade pact delivers a windfall to pharmaceutical companies that make biologics —ultra-expensive drugs produced in living cells. It gives them 10 years of protection from generic competition, up from eight the Obama administration had negotiated in the TPP, the Associated Press reported.

Biologics are complex drugs made in living cells. Among the most widely used are AbbVie Inc.’s (ABBV) Humira and Johnson & Johnson’s (JNJ) Remicade, both immunosuppressants, which list for tens of thousands of dollars for a year of treatment in the U.S., The Wall Street Journal reported.


The United States pressured Canada and Mexico to raise the dollar amount that shipments must reach before they become subject to import duties. Canada, for instance, will allow tax- and duty-free shipments worth up to 40 Canadian dollars (about $31), up from 20 Canadian dollars ($16) under NAFTA.

The change makes U.S. products more competitive in Canada because they will be subject to less tax at the border — and delivers savings to Canadians who shop online. However, trade attorneys note, the higher threshold poses a threat to Canadian retailers.

A potential winners from this is Amazon.com (AMZN), the Globe and Mail reported.


For retailers and consumer brands, the threat of losing cheap imports was a huge concern. Constellation Brands Inc. (STZ) was at the top of the list, with its main business being producing beer brands Corona and Modelo in Mexico and shipping to the U.S. But now those fears have been eased, Bloomberg explained.


U.S. dairy farmers will be able to ship more products to their northern neighbor, a prospect their Canadian peers don’t like. But even with increased access to Canadian dairy markets, the new deal could hurt Dean Foods Co., (DF) the biggest U.S. producer, Amit Sharma, an analyst at BMO Capital Markets, told Bloomberg. The agreement could boost demand and prices for raw milk that the company uses to make its products, such as ice cream, and reduce profit margins, Sharma said.


When Trump won the election, shares of Kansas City Southern (KSU) declined because its railroads haul goods between Mexico and Canada on the so-called NAFTA highway. Its stock, along with other North American rail companies, rose on Monday with the risk to the trade zone being taken off the table, Bloomberg reported.


Clean-energy manufacturers with factories in Mexico, such as Enphase Energy Inc. and Acuity Brands Inc. (AYI) are relieved because they rely on unfettered access to the U.S. and Canada, according to Jeffrey Osborne, an analyst at Cowen & Co.


The deal bars countries from forcing companies to store user information in servers based in the country where those consumers reside. This helps major cloud companies like Amazon.com Inc. (AMZN) and Alphabet Inc.’s Google (GOOG), which sell storage to Canadian and Mexican companies and governments but don’t want to build out separate storage facilities in those countries. Some security and privacy advocates have expressed concern that including the provision could make non-Americans more susceptible to being monitored by U.S. security agencies like the NSA or CIA.

Material from Bloomberg, Reuters and the Associated Press has been used in this report.

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General Motors and Ford are among a handful of household corporate brands seeingly stand to gain the most from President Donald Trump's trade deal with Canada and Mexico to replace NAFTA.
stocks, nafta, trump, trade, deal
Monday, 01 October 2018 05:15 PM
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