07:39 AM EDT, 06/06/2025 (MT Newswires) -- April data showed the bite of tariffs in Canada, although declines are likely partially due to both the end of front-loading to pre-empt United States tariffs, and exchange rate effects, said Scotiabank.

Canadian exports dropped by 10.8% month over month in April, following a 2.2% decline in March. Similar to March, exports to the U.S. declined (-15.7% month over month), while exports outside the U.S. grew (+2.9%). U.S.-bound exports declined for goods across the board, slowing in 10 of 11 product categories.

For Canada, April marked the first full month with tariffs on non-CUSMA compliant goods, steel and aluminum, and autos. Canadian CUSMA compliance rates increased to 89%, while compliance for Mexican export to the U.S. declined to 82%.

The U.S. trade outlook was even less favorable, noted the bank. U.S. Census Bureau data indicates U.S. imports declined by 16.3%, and goods imports declined by 19.1% -- similarly impacted by frontloading. Large contributors to declines include imports of pharmaceuticals, finished metals and passenger cars.

For the U.S., Scotiabank recalled that April figures reflect a different trade environment. At points that month, the U.S. effective tariff rate on imports was 27%, and Chinese imports faced a 145% tariff. The current effective tariff rate on U.S. imports is roughly 12%. Despite high export volumes, trade-related uncertainty data, which is out for May, declined from April levels, likely as a result of tariff reductions.

Even if trade flows somewhat rebound next month, slowdowns could persist due to both policy and uncertainty, stated Scotiabank. Measures in place currently avoid worst-case scenarios for Canada and Mexico -- but are still "significant."

Carve-outs for automotive parts and USMCA compliance lessen effects, and the two countries currently face an effective tariff rate of less than 5% each. These levels, which were unthinkably high a year ago, align with more recent optimistic assumptions, pointed out the bank.

Optimism isn't solely a U.S. trend, it added. Exemptions offered by Canada's government apply to roughly 30% of goods affected by import tariffs, reducing the impact of retaliatory efforts to an effective 1.6% rate on Canadian imports. These levels offer upside risks for growth if further climb downs occur, and intensification is avoided.

Uncertainty remains high, given the number of variables. Upholding the repeal of IEEPA tariffs -- which would see effective tariffs on U.S. imports fall to roughly 4%, and Canadian and Mexican export rates decline to 2%-2.3% -- could be paired with further increasing/expanding Section 232 tariffs as substitutes.

Repeal would still be favorable for Canada, even if Section 232 tariff remain, given easing of headwinds to global growth offers greater overseas export opportunities.

April data appears to represent a significant drop, but are also likely distorted by the end of frontloading as tariffs take effect, according to Scotiabank. In the coming months, as the effects of tariffs continue to be felt, impacts on demand, inflation, investment and household spending should become clearer, as should their implications for the broader economic outlook.