07:10 AM EDT, 04/03/2025 (MT Newswires) -- United States President Donald Trump's "Liberation Day" announcement of reciprocal tariffs on Wednesday provides some relief for Canada and Mexico -- relative to expectations -- but a more challenging situation for most other countries and the U.S. economy itself, said Bank of Montreal (BMO).

At the moment, it seems, Canada and Mexico are spared reciprocal tariffs, noted the bank. Both nations will continue to pay duties under the International Emergency Economic Powers Act (IEEPA) order concerning border security issues of fentanyl and migration.

That is, 25% on non-USMCA compliant goods and no tariff on USMCA compliant goods, which for Canada could be the vast majority of products once the necessary paperwork is completed. Energy products, critical minerals and potash from Canada will continue to pay a 10% duty.

If these duties are withdrawn, then USMCA-compliant goods will continue to pay no duty while non-USMCA-compliant goods would pay a 12% reciprocal tariff.

For Canada, BMO estimates that the weighted average tariff on shipments to the U.S. could rise by only around seven percentage points. That's based on an estimated 12.5% duty on motor vehicles -- to reflect U.S. content, though parts could eventually be a different story -- and other sectoral duties.

That's much lighter than assumed in the bank's forecast, suggesting a possible upgrade to the outlook. Still, more U.S. tariffs could well be applied to lumber and pharmaceuticals, which would raise the average duty for Canada, so BMO shall keep its pencils down until the dust settles a bit.

The U.S. trade war has escalated with countries other than Canada and Mexico, and the response of these nations could well determine whether the escalation continues or ebbs, according to the bank.