Auto stocks rally on US-Canada-Mexico trade deal

Shares of U.S. auto manufacturers rallied Monday after the U.S. announced an agreement with Canada on a new trade deal.

The sweeping trade pact, which includes Mexico, will replace the North American Free Trade Agreement, a frequent target of criticism for President Trump. The deal is designed in part to level the playing field between U.S. and Mexican factories. It requires that 40 percent to 45 percent of vehicle content be made by workers earning at least $16 per hour, according to the Trump administration. Terms of the agreement also exempt Canada and Mexico from potential U.S. car tariffs and set new “rules of origin,” which aim to have manufacturers use more parts made in the U.S. and North America.

Trump said the United States-Mexico-Canada Agreement (USMCA) marks a “new dawn” for the American auto industry and its workers.

“The American autoworker was very much behind what we were doing,” Trump added, saying the deal will turn America back into a “manufacturing powerhouse.”

The creation of the USMCA avoids an escalation of trade tensions between the three nations. Companies had raised concerns that failure to reach a deal would disrupt the industry’s supply chains, and last week, Trump suggested that the U.S. could impose tariffs on vehicles imported from Canada if a deal didn’t materialize.

“Ford is very encouraged by today’s announcement, and we applaud all three governments for working together to achieve free and fair trade in a strong regional agreement,” Joe Hinrichs, Ford’s executive vice president and president of global operations, said in a statement. “The benefits of scale and global reach will help to drive volume and support manufacturing jobs.”

General Motors called the USMCA “vital to the success of the North American auto industry,” adding that it has “long supported efforts to modernize” trade terms between the three nations.

UAW President Gary Jones issued a statement saying “the idea and concept of the USMCA could have the potential to provide some needed relief for America’s working families.”

Shares of GM and Ford rose more than 1 percent in recent trading. Fiat Chrysler led Detroit’s Big Three with a gain of more than 2 percent. The Chrysler Pacifica minivan, a key vehicle for the Italian-American company, is built in Canada.

Ticker Security Last Change Change %
GM GENERAL MOTORS CO. 47.72 -0.07 -0.14%
F FORD MOTOR CO. 11.84 -0.10 -0.84%
FCAU n.a. n.a. n.a. n.a.

“At first blush, the USMCA deal appears to be saving the automotive industry some major headaches, but we’re not quite out of the woods yet,” Ivan Drury, senior manager of industry analysis at Edmunds, said in an email. “The elimination of a 25 percent tariff on imported vehicles is a huge win, but the new regional value content requirements mean that automakers will not able to source parts as freely, so there will be added costs associated with vehicle manufacturing.”

Drury noted that higher costs related to the USMCA’s rules for auto parts could stretch record-high vehicle prices even further.

Peter Navarro, a trade adviser to Trump, told Fox News that he expects the deal to be signed by Nov. 30. Congress must also ratify the agreement.