Weighing the Importance of NAFTA vs China

Currently, one trade deal may be more important than another

President Donald Trump said last week that the North American Free Trade Agreement (NAFTA) talks are “moving along nicely.” Trade ministers from Mexico, Canada, and the U.S. met in Washington, D.C., and are pushing to finish an agreement by early May.

 At the same time, plans are in the works for U.S. Trade Representative Robert Lighthizer to make a trip to China to hash out details of future deals with another one of America’s largest trading partners.

No one would argue that all 3 countries are vital for the agriculture sector of the U.S., but which trade ally carries more weight at the moment?

“Under the current situation we have to have a NAFTA agreement, in principle, before the Mexican elections in July and even before the Chinese negotiations with Mr. Lighthizer,” said Mike Zuzolo from Global Commodity Analytics. ”The trade in the ag sector for futures is going to be extremely hard to get any kind of investor to buy into in without a NAFTA agreement. NAFTA takes much more precedent than China, in my opinion.”

 To back up this train of thoughts, Zuzolo says look no further than the Latin American currencies.

“In almost every news story I read about NAFTA, if it’s good news the Peso strengthens, if it’s bad news the Peso falls and right now that currency is at a four month low,” Zuzolo said. “As the Peso goes, so does the Argentine currency, currently at an all-time low. The Brazilian Real is the weakest against the U.S. Dollar since June of 2016.”

Zuzolo says these are big changes in the currency spreads and those factors will keep most investors on the sidelines when it comes to long positions. He says that as the trade is pricing in good and bad NAFTA news and the grains and livestock are seeing it, so the sooner trade can be shored up between Mexico and Canada, the better.