Should Trade Tensions Drive You Away From This ETF?

Canada and the United States will wrap up yet another week of North American Free Trade Agreement re-negotiations on Friday, September 7. Foreign Affairs Minister Chrystia Freeland remained confident that a deal was “possible” and that it could also be a “win” for all three sides. Canada and the U.S. will need to come to an agreement by October 1 to enter into a joint agreement that will include Mexico.

There are several sticky issues that have kept the sides from coming to a solid agreement. North American auto content, the fate of supply management, and the continuation of Chapter 19 are likely at the top of the list.

The Canadian delegation has remained steadfast in refusing to scuttle supply management or budge on Chapter 19. A leaked report from Bloomberg last week also cast doubt on whether the Trump administration was negotiating in good faith.

Intense trade negotiations have sparked volatility for the BMO Equal Weight Industrials ETF (TSX:ZIN). Shares have dropped 0.7% over the past week but the stock is still up 10% in 2018 so far. Some of its top holdings include Russel Metals, Canadian Pacific Railway, and others that could be impacted by a new trade agreement.

The October 1 deadline is looming large and if a deal is not reached the White House could move to impose auto tariffs worth up to 25% on Canadian automobiles and automotive parts.

This could have a catastrophic impact on the core auto industry and other manufacturing sectors. For that reason investors may want to steer clear of this ETF as we head into the fall.