Event Description

This study investigates the market impact of the US-Mexico-Canada Trade Agreement (USMCA) on the stock market returns and volatility spillovers across the respective countries. We show that investors’ responses were significantly negative for each of the countries and most sectors around the critical event dates. The negative return impacts observed are consistent with multilateral wealth destruction for each party to the agreement and to the bloc as a whole. Volatility spillover effects are observed, with the US having largest impact. No significant evidence of a change in the volatility spillover effect is the period subsequent to USMCA official ratification. Since its inception, ongoing trade disputes as a consequence of USMCA led to speculation that the agreement’s future is dubious in the upcoming review in July 2026.   This speculation has turned to almost a certainty with the inception of a Strategic Trade War between the parties on  February 5, 2025.

Learning Outcomes

1. Understand the impact of trade agreements on equity markets
   Explain how the USMCA influenced stock returns and investor sentiment across the US, Mexico, and Canada.
2. Analyze volatility spillover effects during geopolitical events
   Identify how volatility transmission occurs between markets and why the US had the largest influence.
3. Evaluate market risks arising from ongoing trade disputes
   Discuss the implications of strategic trade wars and the uncertainty surrounding USMCA’s future.