By Joe Light

The market, at least so far, isn't blanching at President Donald Trump's assertion that 25% tariffs against Mexico and Canada will be implemented next month. Investors have grown to realize that with Trump, tariff pronouncements are as much a negotiating tactic as a promise of what's to come.

For now, investors have more to worry about anyway. The Conference Board on Tuesday said consumer confidence fell for the third straight month in February, adding to other indications that the U.S. economy may be slowing. The S&P 500 late Tuesday morning fell about 1%, while the Nasdaq Composite was off 1.8%.

Against that backdrop, shares of companies in Mexico and Canada are holding up surprisingly well. The iShares MSCI Mexico exchange-traded fund, for example, fell about 1.6% Tuesday, while the iShares MSCI Canada ETF was off 0.9%. The U.S. dollar gained about 0.3% against both the Canadian dollar and the Mexican peso.

A month ago, Trump announced 25% tariffs on Mexican and Canadian imports, because of what he said was the countries' failures to stem the tide of immigrants and fentanyl across the border. He paused the levies days later, after the leaders of those countries made commitments to reinforce their borders. The pause is set to expire on March 4.

At a news conference Monday, Trump said he'd let the tariffs proceed "on time, on schedule." He homed in on the administration's more recent push for "reciprocity" with other nations that have enforced tariffs on the U.S. -- meaning the U.S. would impose the same level of tariffs on imports from those countries.

But commerce between the U.S., Canada, and Mexico for decades has been governed by free trade agreements -- though the countries have accused each other of breaking the rules to subsidize some specific domestic industries, like lumber or automotives.

But there are still causes for investors to doubt that the tariffs are really happening, or at least that they'll be in place for the long term.

Trump's pronouncement could just be a negotiating tactic. On Tuesday, Mexico President Claudia Sheinbaum Pardo said talks were ongoing and that she expected to strike a deal with Trump this week.

"On the Mexico and Canada tariffs in particular, people don't buy it," said Stephen Myrow, managing partner of Beacon Policy Advisors. "They won't believe it until they actually see it."

Trump's new emphasis on reciprocity also gives other nations' leaders the hope that they can make concessions to the U.S. to avoid levies on their imports. That was less of a possibility when Trump was pushing for a baseline tariff to drive the revival of U.S.-based manufacturing.

"It creates an opportunity for people bilaterally to negotiate with Trump if you can convince him you delivered something," Myrow said. "With baseline tariffs being about manufacturing, there was no way out."

Of course, if the negotiations don't pan out, a trade war could escalate quickly. Sheinbaum has said Mexico has a "Plan B" to implement retaliatory tariffs and other measures if the U.S. tariffs go into place. Canadian officials have said they have a suite of tariffs targeting U.S. exports from Republican-leaning states they can implement if needed. Trump, for his part, has promised to escalate the tariffs even further if the U.S. faces retaliation.

But in the face of so many other economic headwinds, investors seem to be betting that Trump is more likely to take an offramp than add to the economy's woes.

Write to Joe Light at joe.light@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 25, 2025 14:20 ET (19:20 GMT)

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