After more than a year of tense talks, Canada, Mexico and the United States have replaced the North American Free Trade Agreement (NAFTA). Franklin Templeton Multi-Asset Solutions’ Stephen Lingard gives his take on the new trilateral trade pact and explains why it could benefit select Canadian companies.

On September 30, Canada and Mexico reached a last-minute deal with the United States to replace the 1994 North American Free Trade Agreement (NAFTA).

We think the new United States-Mexico-Canada Agreement (USMCA) averts the worst fears of a breakdown in trade relations between the three countries and potential disruption to regional supply chains. As we mentioned in a previous article, the protracted renegotiation process posed threats to the North American auto market in particular.

The chart below shows some of the main differences we see between NAFTA and USMCA.

In our view, the new North American trade deal is neither especially good nor bad for Canada and Mexico. But the fact that it clears away some of the uncertainties is positive, in our eyes. This new deal may support capital expenditure and remove a headwind from future growth.

However, the path to this agreement included threats, tariffs and sanctions, which are not generally part of the normal course of negotiations.