ETF News

The ongoing trade negotiations between the United States (U.S.) and the European Union (EU) have reached a framework trade agreement, with the White House releasing a communique outlining the details of the trade deal, namely:

• A tariff rate of 15% on European goods, including autos and auto parts, pharmaceuticals, and semiconductors.
• Sectoral tariffs on steel, aluminum, and copper will remain unchanged; the EU will continue to pay 50%.
• The EU will invest $600 billion in the United States over President Trump’s term.
• The EU will double down on America as the Energy Superpower by purchasing $750 billion of U.S. energy exports through 2028. 
• The European Union agreed to purchase significant amounts of U.S. military equipment.

Regarding the reception of the trade deal, European leaders have expressed their disappointment, with French Prime Minister François Bayrou describing the agreement as a capitulation to the United States. In contrast, others have expressed a sense of resignation, such as German Chancellor Friedrich Merz, who stated his dissatisfaction with the result of trade talks but noted "more simply wasn't achievable." The German Chancellor also pointed out that the German economy would suffer "significant" damage due to the agreed tariffs.

Investment Implications

An immediate takeaway from the trade agreement is its potential benefits for U.S. energy producers and U.S. military contractors. Regarding the former, the pledge to buy U.S. energy boosts the energy sector, especially liquefied natural gas producers. As noted by the U.S. Energy Information Administration, the United States exported 11.9 billion cubic feet per day (Bcf/d) of liquefied natural gas (LNG) in 2024, maintaining its status as the world’s largest LNG exporter, with Europe as the primary purchaser.

With a commitment to purchase more U.S. energy, one can expect energy producers – particularly LNG producers – to benefit greatly.

As mentioned in a previous article, the U.S. is the global leader in defense and military contracting. The commitment to purchase U.S. armaments could be viewed as detrimental to European defense manufacturers, who would potentially see reduced spending from European governments. Given that European defense equities have surged this year, following regional governments' promises to increase military spending, this trade development will have economic reverberations going forward.  

ETFs of Consideration

For Canadian investors looking to gain exposure to the industries mentioned above, the Global X Natural Gas ETF (Ticker: HUN) provides access to natural gas prices. HUN aims to track the performance of the Solactive Natural Gas Winter MD Rolling Futures Index ER.

For those seeking exposure to military and defense contracting, the iShares U.S. Aerospace & Defense Index ETF (Ticker: XAD) offers access to a diverse array of manufacturers, assemblers, and distributors of aircraft and aircraft components for commercial and private air transport, as well as producers of advanced defense systems including military aircraft, radar technologies, and weaponry. Tracking the Dow Jones U.S. Select Aerospace & Defense Index, XAD provides a focused approach to this vital sector. Alternatively, the Global X Defence Tech Index ETF (Ticker: SHLD) offers exposure to a globally diversified portfolio of companies involved in the development of advanced military systems, technology, and hardware, spanning key markets across Europe, North America, and Asia.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.