06:36 AM EDT, 04/03/2025 (MT Newswires) -- No news was good news for Canada, but only relative to what some may have feared, said CIBC after U.S. President Donald Trump announced his reciprocal global tariffs.

Canada avoided being listed among countries subjected to new "reciprocal" tariffs announced by President Trump, but that still leaves previously announced tariffs on autos, steel, aluminum and lumber, alongside the 25% fentanyl-related tariffs intact for non-USMCA-compliant goods, noted the bank. However, if USMCA compliance has improved, meaning exemptions from the latter will have risen, the weighted average tariff paid by Canada could potentially be lower than the 10% baseline reciprocal tariff imposed on other countries on Wednesday.

In a world of full compliance where all U.S. bound exports meet the USMCA criteria, CIBC estimates the weighted average effective tariff could be around 5% or less based on the sectoral-tariffs alone. That's at least a silver lining among the tariff-driven storm clouds that have been forming over the Canadian and global economies this year.

Wednesday's announcement of reciprocal tariffs from President Trump was calculated up from a 10% baseline charge, although for many countries the tariff will be set much higher. These include an announced 20% on imports from the European Union, 24% from Japan and 34% from China.

Canada and Mexico will be exempt from reciprocal tariffs as long as the existing fentanyl/immigration driven tariffs on non-USMCA-compliant goods remain in place. If these tariffs were to cease, Canada and Mexico would be subject to a 12% reciprocal tariff on non-USMCA-compliant goods. The U.S. has previously stated that last year, 38% of Canadian exports were USMCA compliant, although the bank expects that compliance is ramping up rapidly given that companies now have a big financial incentive to make sure the correct paperwork is in place.

That still leaves Canada subject to higher tariffs on steel, aluminum, autos and lumber. While that might seem like a small list, long-lasting tariffs on those sectors would still leave a sizeable hole in the economy because they are amongst the most vulnerable and dependent on U.S. trade, pointed out CIBC.

Using the bank's modelling framework from previous research that accounts for direct and indirect effects, those sector-specific tariffs could leave the Canadian gross domestic product 1.5% to 2.0% lower than CIBC's pre-tariff baseline and employment lower by 125,000. Those numbers don't account for government retaliation, which could make them slightly higher, or for how much monetary and fiscal policy tries to mitigate some of the hurt.

While Canada averted some of the worst-case scenarios on Wednesday, the country could still see a negative quarter in Q2 due to the impact of uncertainty on business investment and a pull-back in exports following the surge seen in Q1 as companies looked to front-run tariffs, added the bank.

Canada's better fortune comes at the expense of other trading nations, however, and could also end up biting Canada by slowing U.S. and global growth, weighing on demand for Canadian goods even without further tariffs. The effective tariff rate on U.S. imports is now close to 20%, based on the selected table that Trump showed Wednesday and the North American exemptions.

That is the biggest news of Wednesday and represents an "astronomical" increase that could reduce GDP over the medium-term by around 1% to 2% through the income channel, according to CIBC. Recycled tariff revenue could offset some of that over time, but in the short run, deteriorating sentiment and uncertainty could amplify the shock as businesses and households hold off on investment and major purchases in the hopes that the Trump administration dials tariffs down.

The larger inflationary implications are probably going to sideline the Federal Reserve for longer, and so the administration likely won't get rate relief to help smoothen things out until the Fed is confident inflation expectations are anchored, and the risks to the job market spook them more than the inflation risks, said the bank. The economic pain and the design of the tariffs are reasons to expect that the tariffs announced Wednesday will likely be negotiated down.

East Asian economies will face a major shock with tariff rates ranging from 25%-50%, and the EU is already identifying areas where it's willing to make concessions.

For the Bank of Canada, CIBC leans towards an April rate pause after Wednesday's somewhat-better-than-expected outcome. That doesn't mean the BoC is necessarily done easing because the tariffs announced on Wednesday and the uncertainty of renegotiating USMCA with Trump are still going to weigh on the economy and job market.

However, Canada's central bank has the luxury of waiting a bit more with an economy that enters this trade war in decent shape and also to see what the new government in the spring will offer to change the economy's fortunes and how the government approaches the trade war.

Ultimately, the real cure will be to get to the negotiating table and dial down the trade war with the U.S., stated the bank.