ETFs

Three ETFs Impacted By US-South Korea Trade Agreement

The United States and South Korea agreed to modify a free-trade agreement, which, upon execution, will be the largest value of trade volume in the world since the North American Free Trade Agreement (NAFTA) paving the path to opportunity for the iShares MSCI South Korea Index (EWY), the Consumer Discretionary Select Sector SPDR (XLY) and the iPath Dow Jones-UBS Livestock Subindex Total Return ETN (COW).

More specifically, the amendments to the trade agreement includes new steps to open up South Korea’s auto market to US producers by enabling 25,000 vehicles to enter South Korea based on US safety standards.   Furthermore, the United States is allowed to keep a 2.5% tariff on Korean-built cars for five more years, which will eventually be cut, and a 25 percent tariff on trucks until the eight year and eliminate the duty in the tenth year of the pact.   

From South Korea’s perspective, the agreement calls for the Asian nation to be able to keep a 4% tariff on US auto imports and to eliminate a 10% tariff on US trucks.  Additionally, the agreement phases out a 40% South Korean tariff on US beef making US beef more attractive in the growing nation. 

At the end of the day, the US International Trade Commission expects this agreement to boost US exports to South Korea by $10 billion or more and slightly narrow South Korea’s surplus with the US, while increasing US imports from South Korea by $6.4 billion to $6.9 billion. 

As previously mentioned, some ETFs likely to be influenced by this agreement include:

  • iShares MSCI South Korea Index (EWY), which boasts South Korean auto makers like Hyundai Motor Company and Kia Motors.
  • Consumer Discretionary Select Sector SPDR (XLY), which allocates 4.77% of its assets to Ford Motor Company (F), which is the top-selling US automaker in South Korea selling 3,100 units from January through October of this year.
  • iPath Dow Jones-UBS Livestock Subindex Total Return ETN (COW), which seeks to replicate the performance of the Dow Jones-UBS Livestock Subindex Total Return Index; the index allocates 59.27% of its assets to cattle, which is likely to see increased demand in South Korea as the lifting of the tariff is expected to make beef more attainable.

Disclosure: No Positions

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