Things Are Looking Brighter for NAFTA Ahead of the Next Round of Negotiations

Companies such as Linamar Corporation (TSX:LNR) could have cause for celebration, as reports suggest the U.S. may be softening its stance on NAFTA.

The Motley Fool

A recent report from the American news site Axios detailed a potential “softening” of President Trump’s position on NAFTA. Canadian officials entered 2018 with a greater degree of pessimism than at any point during the negotiations. Royal Bank of Canada CEO Dave McKay suggested that the chances of NAFTA being scuttled were rising earlier this month.

However, the new report suggests that Trump and his administration may be shifting gears. According to sources close to Trump, he has started to take the potential financial fallout “more seriously,” as Republican senators and members of his own cabinet have applied pressure. One of the key factors for Trump is the possibility that the stock market run in the U.S., which has become a source of personal pride for the president, could be interrupted if NAFTA is terminated.

In addition to this, scrapping NAFTA could harm farmers and the agricultural industry in the U.S. Trump has drawn a large pool of support from these communities, and senators have argued he would be playing a dangerous political game to put them in harm’s way.

Trump opined on NAFTA in a speech to farmers in Nashville this month. “On NAFTA, I’m working very hard to get a better deal for our country and for our farmers,” he said. “It’s not the easiest negotiation, but we’re going to make it fair for you people again.” Trump also told the Wall Street Journal that he “would rather be able to negotiate [NAFTA].”

Representatives from Mexico and Canada have believed from the onset that the Trump administration wanted to maintain the threat of terminating NAFTA to strengthen their negotiation position. No administration official has acknowledged an internal “softening” on NAFTA.

Much of this reorientation could stem from Trump’s dismissal of his former chief strategist Steve Bannon. Bannon was notorious for his “economic nationalist” and hardline protectionist rhetoric. He was fired in August 2017 and has been completely alienated from pro-Trump circles in recent weeks after giving his take to a scathing tell-all book that detailed the opening months of the Trump White House.

Linamar Corporation (TSX: LNR) has seen its stock drop 8.2% over a three-month span as of close on January 18. The U.S. side made demands in 2017 that laid out a 50% U.S. content requirement for the auto sector. Linamar has less than 30% of its assets in the U.S., but its corporate leadership has remained confident that the U.S. demands will not be entertained by Mexico or Canada.

Compare Linamar to Canadian Pacific Railway Limited (TSX: CP)(NYSE: CP). CP Rail CEO Keith Creel recently said that the scuttling of NAFTA would have a limited impact on the company. Creel conceded that 30% of its business is cross-border, most of which is in agricultural products. CP Rail released its fourth-quarter 2017 results on January 18 and reported a 5% increase in revenue from $1.64 billion to $1.71 billion.

Reporting will likely continue to be sparse on internal thinking on NAFTA, as the White House aims to weed out leaks going forward. However, recent comments are an indication that the U.S. might not be so eager to terminate the decades-old agreement.

Fool contributor Ambrose O'Callaghan has no position in any stocks mentioned.

More on Investing

A meter measures energy use.
Energy Stocks

Canadian Utilities vs. Hydro One: Which Dividend Stock Would I Hold for 15 Years?

A proposed merger changes the Canadian Utilities comparison, while Hydro One still requires price discipline.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Thursday, November 12

Rising natural gas prices could help TSX energy stocks extend their gains today, while falling oil, gold, and silver prices…

Read more »

pig shows concept of sustainable investing
Stocks for Beginners

How I’d Turn Quarterly Bank Dividends Into a Monthly Paycheque

Quarterly bank dividends can fund regular monthly transfers without choosing stocks for payment dates.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Energy Stocks

Retirees: How to Use Your TFSA to Earn an Average of $386 in Monthly Tax-Free Income

This TFSA strategy can help boost average returns while reducing risk.

Read more »

man studies at computer
Dividend Stocks

Here Are The 3 Canadian Stocks I’d Tell a New Investor to Buy ASAP

Discover strategies for investing in stocks that can help you thrive in a market filled with volatility and uncertainty.

Read more »

oil pumps at sunset
Dividend Stocks

Canadian Natural Resources vs. Suncor: The Dividend Stock to Own Through 2026

Let’s compare Canadian Natural Resources and Suncor Energy across their financial performance, dividend track records, growth prospects, and valuations to…

Read more »

telecom towers concept for wireless technology
Dividend Stocks

BCE Stock Is Down 2% After Q3: Is the 5.8% Dividend Safe?

BCE stock slipped 2% after Q3 earnings. See whether the 5.8% dividend is safe, how free cash flow covers it,…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Too Busy to Invest? This Dividend Stock Deserves a Permanent Place In Your TFSA

This Canadian stock appears well-positioned to keep paying and growing its dividend and deliver solid capital gains in the long…

Read more »