By Josh Nathan-Kazis

The Trump administration's new tariffs on Canada and Mexico, and higher levies on China, don't seem likely to have a major impact on health stocks, but investors in the sector shouldn't be breathing easy.

While drugmakers, medical-device manufacturers, and companies that make scientific tools have far-flung manufacturing networks, those networks for the most part don't rely heavily on either Canada or Mexico.

The exception is medical-device makers, some of which do have significant factories in Mexico. Large medical-device stocks were down slightly Tuesday, while some smaller medical-device makers were down more sharply. The iShares U.S. Medical Devices exchange-traded fund, which tracks the companies, fell 1.5%.

For the sector at large, though, the new tariffs simply don't top the list of big problems. The Health Care Select Sector SPDR ETF, which tracks healthcare stocks, was down just 0.6% Tuesday, while the S&P 500 was down more than 1%.

"The risk factors surrounding healthcare are so pervasive, with respect to drug pricing, with respect to Medicare, Medicaid," Mizuho healthcare equity strategist Jared Holz told Barron's on Tuesday. "I think the tariffs are just another unwanted headwind, but I don't think this as a risk factor alone is prompting investor decisions."

It has been a worrying few weeks for healthcare investors. The threat of significant cuts to the Medicaid program shook hospital stocks and some insurance stocks last week. There are major uncertainties around how the Trump administration will approach certain Biden-era efforts to cut drug prices, and what the confirmation of Robert F. Kennedy Jr. to lead the U.S. health bureaucracy will mean for the sector.

In that context, the new tariffs that went into effect on Tuesday aren't likely great news for most healthcare companies. Yet they don't lead the list of worries for healthcare investors.

Health executives mostly brushed off the tariff news. At an investor conference hosted by TD Cowen on Tuesday morning, the CFO of the drug distributor McKesson, Britt Vitalone, said that the impact of tariffs on Canada and Mexico is "fairly immaterial" for the company. An executive from the scientific tools and diagnostics company Agilent called the new Canada and Mexico tariffs "probably negligible."

Speaking at the same conference on Monday, Pfizer CEO Albert Bourla said that if needed, Pfizer could shift some manufacturing into one of its 13 U.S. factories. "If something happens, we will try to mitigate by transferring from manufacturing sites outside to manufacturing sites here," he said.

Among the medical device companies that saw the steepest selloffs Tuesday was Masimo, which makes devices used to monitor patients, and was down 5.6%. At a separate investor conference hosted by Raymond James on Tuesday, an executive said that the company makes lots of its devices in Mexico, and that it has plans to shift as much as possible out of Mexico over the next year.

Align Technology, which sells the orthodonture system Invisalign, has said it makes its aligners in Mexico, and that it would continue to do so even in the event of a 25% tariff. Its stock was down 2.8%.

Larger medical-device names, such as Medtronic, Abbott Laboratories, and Johnson & Johnson, weren't as badly affected.

Write to Josh Nathan-Kazis at josh.nathan-kazis@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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March 04, 2025 13:41 ET (18:41 GMT)

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