Money Advice

We have a trade deal (just not with China)

Posted by The Simply Money Advisors Team on Oct 1, 2018 8:45:42 AM

On Sunday night, the U.S. and Canada revamped the North American Free Trade Agreement (NAFTA) by agreeing to a new trade deal called the U.S.-Mexico-Canada agreement (USMCA).

Some of the highlights of the deal include increased protection for intellectual property, better access to Canada's dairy market, 40% of auto production must be from workers earning at least $16 per hour, and 75% of auto components must be made in one of these countries to be excluded from tariffs.

Also, unlike NAFTA, the deal must be reviewed in six years and it will sunset in 16 years. The deal is expected to be signed by the end of November, and then it will be submitted to Congress.

While progress on trade was made with Canada, the opposite is continuing with China. The U.S. imposed a 10% tariff rate on $200 billion of Chinese goods, bringing the total amount of Chinese goods subject to tariffs to $250 billion. The U.S. said it would increase that tariff rate to 25% on January 1, 2019.

China immediately responded by saying it would levy tariffs on $60 billion of U.S. goods (there are now tariffs on $110 billion of U.S. goods). President Trump threatened tariffs on an additional $267 billion of Chinese goods. Meanwhile, China can only apply tariffs to about another $20 billion of U.S. goods.

Last week, for the third time this year, the Federal Reserve, our nation’s central bank, raised short-term interest rates. The Federal Reserve (Fed) also indicated it would hike rates again in December.

Even though short-term interest rates are at the highest level in 10 years, they are not yet at levels that will slow down the economy. In fact, the Fed increased its economic growth forecast for 2019.

As is always the case with the first full week of a new month, the economic calendar is packed. There will be key reports on manufacturing, services, and auto sales.

The September jobs report coming out Friday, October 5th will be the most important piece of data, though. Economists expect that the unemployment rate improved to 3.8% and that the number of jobs increased 182,000 last month.

The Simply Money Point

Major investor concerns – such as the Fed hiking rates and the trade war with China – have been with us for quite some time. In spite of these worries, U.S. stocks had their best quarter since 2013.

At Simply Money Advisors, we believe that low recession risk and rising corporate profits are main reasons for the resiliency in the stock market, which is good news for the stock portion of your investment mix.

Topics: Economics


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