- The U.S. and Mexico reached a new agreement to restructure NAFTA.
- The new agreement requires that 75 percent of auto parts be made in the NAFTA region in order to avoid a tariff.
- As a response to the agreement, various car manufacturer stocks in the U.S. and Canada rose.
President Donald Trump announced a new agreement with Mexico on Monday, Aug. 27, that will restructure the North American Free Trade Agreement (NAFTA). Canada is expected to agree to new terms as well in order to remain part of the agreement.
The new agreement covers all types of trade between the two countries, but much of the focus has been on automobiles due to Trump’s proposed tariffs on cars and trucks that are exported to the U.S. from other countries.
Click to read more about what Trump’s tariffs could mean for the cost of items.
In response to the announcement, car stocks in the U.S. and Canada rose between 3 and 5 percent. Companies whose stock price benefited from the news include automobile manufacturers such as Ford, as well as auto parts companies like Canadian manufacturer Magna International.
Major auto stocks that reacted positively to the news and could be worth checking out for a long-term investment include:
- HMC — currently at $30.52
Ford Motor Co.
- F — currently at $10.04
- MGA — currently at $56.14
The new agreement requires that 75 percent of auto content must be made in the NAFTA region, which includes the U.S., Canada and Mexico, in order to avoid a tariff. This is an increase from the current requirement, which is 62.5 percent. In addition, 40 percent of passenger cars and 45 percent of trucks must be assembled by workers who make at least $16 an hour, or the companies will face a tariff.
Given the auto tariffs that Trump has proposed against imports from Asia and other areas of the world, the new agreement should benefit U.S. and Canadian auto stocks over the long term, making these key stocks to buy now in the automotive sector. However, given the wage requirements included in the new agreement, prices of automobiles in the U.S. are expected to rise.
The agreement puts autos front and center but also covers other industries. It retains the current zero-tariff rate for agriculture and supports innovation in the sector, including biotech. It has a 16-year lifespan but will be reviewed every six years. It can be extended for 16 more years at each review. The agreement with Mexico will likely put pressure on Canada to come to a similar agreement in order to retain its inclusion in NAFTA.
Click through to read more about the 15 best short-term stock investments.
Joel Anderson contributed to the reporting for this article.
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Stock share prices are accurate as of Aug. 28, 2018.