United States President Donald Trump Monday delayed the start of tariffs on imports from Canada by 30 days, within hours of coming into effect, noted Bank of Montreal (BMO).

Earlier Monday, he did the same for Mexico. The 25% tariff on all non-energy imports from Canada and 10% tariff on energy imports, along with the 25% tariff on all imports from Mexico, are still pending.

However, the bilateral agreements struck to postpone them paved pathways for both countries to potentially avoid them completely, said the bank.

After President Trump signed the executive order on Saturday putting the tariffs into place, BMO factored them into its Canadian and U.S. economic forecasts.

For Canada, the broad theme, compared to the bank's base case, was much weaker growth -- flirting with recession --, moderately higher inflation thanks to retaliatory tariffs, much lower Bank of Canada policy rates as growth concerns trumped inflation fears and a much weaker Canadian dollar (CAD or loonie) owing to a stronger US dollar (USD) and BoC rate cuts. For the U.S., the broad theme was modestly slower growth and faster inflation.

These tariffs, for the reasons named in the executive order, have shifted from being an essential certainty to now being a risk. BMO's original (pre-Saturday) base case already factored in some risk of tariffs. The bank's forecast for Canadian growth was dampened by lower business spending than would have otherwise be the case owing to the uncertainty (growth would have easily topped 2% this year instead of being 1.9%), with the BoC continuing to ease policy through the summer -- a further 50 bps.

Meanwhile, the Canadian dollar languished above C$1.40 for much of the year. Consequently, BMO has mostly returned to where it was before, in terms of its forecast.

However, this tariff 'scare' is leaving a legacy, pointed out the bank.

It raises the risk of tariffs being used more often for objectives other than international trade policy. More importantly, it leaves BMO even more uneasy about what to expect on and after April 1.

By that date, there will be three reports delivered to the president (under the America First Trade Policy memorandum) that should be full of tariff recommendations backed by formal investigations, or soon-to-be. This should set the stage for more 'Section 232' (national security) and 'Section 301' (unfair trade practices) tariffs.

More profoundly, they will probably make the case for a 'global supplementary tariff'. Will Canada be shielded from such in a renegotiated USMCA? Lots of uncertainty, indeed, added BMO.

In turn, the bank's new base case has slightly weaker Canadian growth than the original (1.7% versus 1.9% for 2025), a slightly weaker loonie (now staying above C$1.40 all year) and meaningfully more downside risk to BMO's BoC call
of 50bps worth of rate cuts by this summer.

What the latest episode has taught BMO is that even with signed legal documents and hard deadlines, this is still a fluid situation. Consequently, this is unlikely to be the bank's last forecast alteration.