Global stocks soar on US-Mexico trade breakthrough as Canada is sidelined

Global stocks soar on US-Mexico trade breakthrough as Canada is sidelined
Global stocks soar on US-Mexico trade breakthrough as Canada is sidelined

Stock markets worldwide rose to a six-month high on Tuesday as fears of a global trade war receded after Donald Trump announced a US-Mexico trade deal.

Global stocks reacted positively to the breakthrough, with investors expressing optimism the deal could signal a change in the Trump administration’s provocative stance on global trade.

The US treasury secretary, Steven Mnuchin, said he was optimistic that Canada will join Mexico in signing up to the proposed restructuring of the 25-year-old North American Free Trade Agreement (Nafta) trilateral trade pact.

“I think our objective is to try to get Canada on board quickly,” he said, speaking to CNBC on Tuesday.

The Trump-Mexico deal announcement had pushed the S&P 500 and Nasdaq indexes to fresh records on Monday, and on Tuesday, Europe and Asia followed Wall Street’s lead, inching to multi-month highs. The FTSE 100 closed up about 40 points, or 0.5%, on Tuesday, while trading on Wall Street nosed the S&P 500 and the Nasdaq up to close at record closing highs for the third consecutive session.

“Global trade tensions have undoubtedly been the most significant source of risk in 2018,” said Hussein Sayed, chief market strategist at FXTM, told Reuters.

“The US–Mexico deal seemed to boost confidence that the trade war is moving closer to an end, and the next question is who’s next to close a deal with Trump?” he said.

The Canadian foreign minister, Chrystia Freeland, cutting short a trip to Europe, will start talks with US trade negotiators, as pressure mounts on Ottawa to agree to join the agreement.

Freedland’s arrival signals Canada’s return to the NAFTA talks after being sidelined following a meeting between Trump and the Canadian prime minister, Justin Trudeau, at the G7 in Quebec in June.

Trudeau described the US actions to raise tariffs on steel and aluminum on national security grounds as “insulting”. Trump retorted that his Canadian counterpart was “very dishonest and weak”.

Wilbur Ross, the US commerce secretary, confirmed on Tuesday that the Trump administration is “fully prepared to go ahead with or without Canada” in ripping up Nafta and warned that Canada’s economy “can’t survive well” without a US deal.

“We hope that Canada will come in. I think it’s a good idea if they do. There’s really not much they should object to. But if not, they will then have to be treated as a real outsider,” Ross told Fox Business Network.

Mnuchin also indicated that the US would go ahead with the US-Mexico deal with or without Canadian support.

But senior Republicans voiced opposition, objecting to both the potential exclusion of Canada and additional restrictions on trade. Pat Toomey, the Republican senator from Pennsylvania, warned in a statement that the administration would not be able to use expedited procedures to get the deal through Congress.

“The administration … must reach an agreement with Canada. Nafta was a tri-party agreement,” Toomey said.

Once the US-Canadian side of the negotiations is complete, the Trump administration has indicated that it will move on to its next two trade priorities: the European Union and China.

US business groups sought to remind the administration that Canada remains its largest export market.

“In order to do no harm to the 14 million US jobs that depend on trade with Canada and Mexico, the agreement must remain trilateral,” the US Chamber of Commerce said in a statement on Monday.

Potential hold-ups to Canadian agreement to the news terms include compromises on agriculture. The US, along with other nations, has frequently called on Ottawa to open its market to increased competition in dairy products.

Under the new agreement with Mexico, 75% of the content in automobiles must be sourced in North America to qualify for tariff-free treatment, up from 62.5% under the current Nafta.

But Canada is likely to object to revisions in Nafta that include rules that will make it harder for treaty members to challenge US trade penalties. While Mexico accepted that change, Canadian officials have said for months that would be unacceptable.

In announcing the deal on Monday, Trump said: “With Canada, frankly, the easiest thing we can do is to impose a tariff on their cars coming in.”