06:21 AM EDT, 07/11/2025 (MT Newswires) -- The latest United States letter sent to Canada on Thursday confirmed a tariff rate of 35% on all goods not impacted by the sector-specific tariffs, effective Aug. 1, said Mitsubishi UFG.

The letter doesn't specify whether USMCA-compliant goods are excluded, but a separate official who didn't speak on the record stated that USMCA-compliant goods will be excluded, wrote the bank in a note to clients.

The Budget Lab currently estimates 50% of U.S. imports from Canada are USMCA compliant. However, that figure is likely rising quickly and could be a lot higher as more goods are formally registered as compliant. Given the tariff charge difference, there's a big incentive to get more goods compliant, stated MUFG.

President Donald Trump added that further letters will be sent on Friday -- one of which is likely to include the European Union -- and that many other countries will be hit with tariffs of between 15%-20%.

The letter to Canada, like all letters, threatens each country that retaliates with the same level added again to the U.S. import tariff. With the EU, for example, very likely to retaliate, this could see a quick escalation, pointed out the bank.

However, in the case of the EU, there remains optimism that a deal can be done by Aug. 1 with active negotiations ongoing. If the EU, China, Canada (through high USMCA compliance), India and the U.K. don't get hit with higher rates you quickly get to an annual import total of over US$2 trillion not impacted by tariffs any higher than now, said MUFG.

So the size of the countries that may not be hit further by higher tariffs may be helping to limit the U.S. Treasury bond and equity market reaction. There is likely also an expectation that the extension to Aug. 1 will also by then have allowed further deals with other countries currently hit with higher tariffs, it added.

But there is little risk priced for this not panning out so well, noted MUFG. The inflation risks remain high and the sector-specific tariffs, now including the 50% tariff on copper, will surely feed into inflation in a much more evident way that could make it difficult for the Federal Reserve to consider easing in September.