What NAFTA threats? Stocks, loonie making gains

U.S. President Donald Trump’s threat to tear up the North American Free Trade Agreement is falling on deaf ears in Canadian markets.

Magna International Inc. and other companies that rely on trade with the U.S. and Mexico are rising even as Trump attacks the “worst trade deal ever made” and negotiators exchange barbs over “troublesome” U.S. demands to overhaul the pact. Canadian stocks are on the cusp of a record high, while the loonie has gained 6.4 per cent this year versus the U.S. dollar.

Investors are looking past the bluster of the stalled trade talks, betting that either a deal will get done, or that a collapse won’t have the dramatic impact that some economists are predicting.

“Sensible minds will prevail,” paving the way for a deal, said Bharat Masrani, chief executive officer of Toronto-Dominion Bank.

A basket of stocks most likely to be affected by the death of NAFTA was up 31 per cent early Monday since Trump’s election, and most are holding up well even after the trade rhetoric soared during the fourth round of talks that ended last week.

Auto suppliers are considered one of the most at-risk sectors if NAFTA disintegrates, yet Martinrea International Inc. is up 70 per cent since the election, Linamar Corp. has gained 55 per cent and is close to a twoyear high. Magna International has added 32 per cent. Ski-Doo maker BRP Inc., which has plants in Canada, the U.S. and Mexico, is up 59 per cent and both major Canadian railways have seen double-digit gains.

Of the Canadian firms that could be hit if Trump follows through on his threats, only dairy producer Saputo Inc. is down since the U.S. election. The Montreal-based company has been hurt by U.S. demands to dismantle dairy quotas and tariffs.

It’s unlikely NAFTA will be blown up because the U.S. would “instantly put itself at a disadvantage,” said Brett House, deputy chief economist at Bank of Nova Scotia. Even if the trade deal was scrapped, the average tariff that the U.S. would charge outside of NAFTA would be about 3.5 per cent, while Canada’s would be 4.3 per cent and Mexico’s would be 7.1 per cent, meaning U.S. exporters would have to pay more than their Canadian and Mexican counterparts.