• The North American Free Trade Agreement (NAFTA) is a trilateral pact between the U.S., Canada and Mexico that has been in force since 1994. Negotiations to revamp and modernize it, requested by the U.S., started in August 2017 and are now encountering some issues.
  • From a US perspective, withdrawal from NAFTA would have significant impacts on domestic industries and jobs. Trade, foreign direct investments flows among the three partners, and jobs would be affected. Moreover, a withdrawal from NAFTA would not only have economic effects but it would combine with an intense political agenda (elections in Mexico, midterms in the US). Hence, in the short-term, we see the risk of a pull-out from the U.S. as decreasing, but we acknowledge the topic could resurface once elections took place.
  • As far as the development of US trade policy in general is concerned, in the short term, we think that the current administration is not likely to take broad disruptive actions in an attempt to align the principles of “fair and reciprocal trade” with “America first” rhetoric.
  • From a multi-asset perspective, a halt in NAFTA renegotiations could affect commodity prices and sector rotation in US equities, but we believe that it is premature to take a position on these issues, given the current high level of uncertainty.
  • In the US equity market, the agriculture and automotive sectors could be the hardest hit in the theoretically unlikely event of a US withdrawal from the agreement.
  • The global economy should aim for balanced development: the accumulation of massive trade surpluses may become unsustainable at a certain stage and protectionist policies to preserve such surpluses may undermine the strength of the recovery and of the stock markets. If trade policies are designed to encourage balanced development of different economies, they are in general positive in the long term.