NAFTA cornNo one can know for sure, but there are some likely contenders. Want to hazard a guess?

HINT: These Six States are all on the Pro Rodeo Circuit. They all grow corn and soybeans. They all have renowned universities. What else do they have in common? According to The Economist, Texas, Iowa, Nebraska, Mississippi, Alabama, and Michigan are likely to experience the biggest increase in tariffs – as a percent of state gross domestic product (GDP) – if and when the North American Free-Trade Agreement (NAFTA) is revised.

Under NAFTA, goods are imported from and exported to Mexico and Canada without tariffs, which are essentially taxes on imported goods. Tariffs typically increase the cost of imports, making them less attractive to consumers. This can help support the market for domestically produced goods and help protect domestic jobs and industries. Currently, the United States sends about $240 billion worth of goods to Mexico, each year, and Mexico sends even more to the United States.

The Economist’s analysis measured potential increases in tariffs, in tandem with the volume of state exports to Mexico, to determine the possible impact on a state’s economy. (The analysis did not include Canadian exports, even though Canada is also a NAFTA participant.) While the effect on the majority of states’ economies would be relatively small, the impact on others could be more significant:

“In 2015, Iowa’s farmers shipped $132M of high-fructose corn syrup to Mexico. Without NAFTA, Mexico would slap a tooth-aching 100 percent tariff on the stuff…Among this group, Texas stands out. It faces an average tariff of only 3 percent, but its exports to Mexico are worth nearly 6 percent of its GDP (compared with 1.3 percent nationally)…Michigan also fits this category. Its exports of cars and parts – many of which end up back in America – would attract tariffs averaging only about 5 percent. But, with such shipments totaling $4.1B, the bill would be painfully large.”

No one yet knows how renegotiating NAFTA may affect any of the countries involved because talks are not expected to begin for several months. I expect there will be plenty of pundits discussing the short-term ramifications of any changes. My suggestion? Don’t let them steer you off the long-term investment course you’ve mindfully set for yourself.

Weekly Focus – Think About It

“Making good decisions involves hard work. Important decisions are made in the face of great uncertainty, and often under time pressure. The world is a complex place: People and organizations respond to any decision, working together or against one another, in ways that defy comprehension. There are too many factors to consider. There is rarely an abundance of relevant, trusted data that bears directly on the matter at hand. Quite the contrary – there are plenty of partially relevant facts from disparate sources – some of which can be trusted, some not – pointing in different directions. With this backdrop, it is easy to see how one can fall into the trap of making the decision first and then finding the data to back it up later. It is so much faster. But faster is not the same as well-thought-out.”
–Thomas C. Redman, “the Data Doc”

* These are the general views of Jonathan DeYoe and they should not be construed as investment advice for any individual.

Sources:

http://www.barrons.com/articles/major-indexes-suffer-their-first-loss-in-weeks-1489210563?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-13-17_Barrons-Major_Indexes_Suffer_Their_First_Loss_in_Weeks-Footnote_1.pdf)
http://www.investopedia.com/investing/how-interest-rates-affect-stock-market/
http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-13-17_CMEGroup-Countdown_to_FOMC-Footnote_3.pdf)
http://blog.aaii.com/aaii-sentiment-survey-most-pessimism-since-february-2016/
http://www.aaii.com/journal/article3/is-the-aaii-sentiment-survey-a-contrarian-indicator
http://beef2live.com/story-states-produce-corn-0-107129
http://beef2live.com/story-soybeans-ranking-production-state-2012-vs-2013-0-110116
http://www.prorodeo.com/prorodeo/rodeo/rodeo-schedule
http://www.economist.com/news/united-states/21716057-rural-republican-states-have-most-lose-farmers-and-texans-would-lose-most (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-13-17_TheEconomist-Farmers_and_Texans_Would_Lose_Most_from_Barriers_to_Trade_with_Mexico-Footnote_9.pdf)
https://www.economist.com/blogs/graphicdetail/2017/02/daily-chart-2 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-13-17_TheEconomist-Which_American_Producers_Would_Suffer_from_Ending_NAFTA-Footnote_10.pdf)
http://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp
http://www.reuters.com/article/us-usa-mexico-trade-idUSKBN16H27V?il=0
https://hbr.org/2017/03/root-out-bias-from-your-decision-making-process

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