Trade Tensions Rise: Trump Pushes Tariff Deadline, Small Business Optimism Wanes

Weekly Economic Review: July 11, 2025

Trade policy took center stage as Trump announced major tariff actions and extended the July 9 deadline for reciprocal tariffs to August 1; small business confidence declined slightly in June

Key Summary:

It was a relatively quiet week for economic data releases, and trade policy developments took center stage. The Trump administration issued a series of tariff warning letters to 23 trading partners—including Japan, South Korea, Brazil, Canada, and Mexico—detailing proposed import duties ranging from 20% to 50%, scheduled to take effect on August 1. Additionally, a key deadline originally set for July 9 was officially extended to August 1.

Among the most notable actions, the administration proposed a 50% tariff on Brazilian imports, cit-ing both unfair trade practices and the treatment of former Brazilian President Jair Bolsonaro. Brazil responded swiftly with retaliatory measures. The U.S. also announced a 50% tariff on copper imports, effective August 1, which sent copper futures soaring to record highs.

In addition, the administration announced 35% tariffs on Canadian imports not covered under the USMCA, also effective August 1. Further threats included 30% tariffs on goods from the EU and Mexico, along with broader proposals for 15–20% tariffs on imports from countries lacking formal trade agreements.

On the economic front. the National Federation of Independent Business (NFIB) announced its Small Business Optimism Index. In June, small-business optimism experienced a slight decline. Business owners remained concerned about taxes, labor quality, and rising costs. Also, Small Business uncertainty decreased slightly.

The decline in optimism was largely driven by dissatisfaction with inventory levels and a more cautious outlook on future business conditions. Businesses struggled to manage stock due to shifting tariff policies, and expectations for sales and economic improvement weakened, reflecting a generally cautious mood amid upcoming policy changes.

Let’s take a closer look at the NFIB Small Business Optimism Index.

NFIB Small Business Optimism Index:

In June, U.S. small-business optimism saw a modest decline, with the NFIB index dropping by 0.2 points to 98.6. This dip came just before President Trump signed the “One Big Beautiful” tax reform bill aimed at reducing the tax burden on businesses. The survey revealed that four out of ten components of the index fell, including dissatisfaction with inventories and worsening economic expectations.

Taxes emerged as the most pressing concern for small-business owners, with nearly 20% citing it as their top issue—the highest level in nearly four years. Although the tax reform had not yet been signed at the time of the survey, its passage shortly afterward could potentially improve sentiment in future reports. Small business owners were also concerned about labor quality, inflation, poor sales, and high labor costs.

Inventory management was a key issue as small businesses overall felt they had excess inventory on hand. This was largely attributed to the Trump administration’s unpredictable tariff policies, which led many businesses to stockpile goods in anticipation of new levies. These inventory challenges, combined with policy uncertainty, contributed to the slight decline in optimism.

Additionally, the current overall business condition and expectations for better business conditions dropped. Sales expectations also declined, even though recent sales pessimism had eased somewhat. Small businesses remained cautious, balancing optimism about fiscal relief with on-going concerns about labor, tariffs, and the broader economic outlook.

Conclusion:

The economic data released last week was not market moving. On its own, the data is not expected to influence the Federal Reserve’s monetary policy actions, or to result in changes in the Fed’s current or future interest rate decisions.

Interest Rate Outlook:

Treasury yields edged slightly higher this week, particularly among mid- to long-term maturities. The two-year, five-year, and ten-year yields closed at 3.90%, 3.99%, and 4.43%, respectively – up 2, 5, and 8 basis points from the previous week.

On the interest rate outlook, markets currently assign almost zero probability to a rate cut in July. Nevertheless, markets are fully pricing in two 25-basis-point cuts in 2025, totaling 50 basis points. The first cut is anticipated at the October FOMC meeting, followed by a second in December. Looking ahead to 2026, markets expect two additional 25-basis-point cuts with 100% certainty, al-so totaling 50 basis points, and are assigning a 64% probability to a potential third 25-basis-point cut.

Next Week’s Economic Calendar:

Next week is expected to be active in terms of economic data releases. The highlight comes on Tuesday with the release of the Consumer Price Index (CPI), which is projected to rise 0.3% in June and 2.6% year-over-year—potentially marking a four-month high. Core CPI is also expected to increase 0.3% for the month and 2.9% annually, both higher than May’s figures. On Wednesday, the Producer Price Index (PPI) will be released. Then on Thursday, retail sales data is due, with expectations of a 0.2% monthly gain in June and a 5.7% increase year-over-year. Wrapping up the week, Friday will bring housing data: housing starts are forecast to rise 3.5% to 1.30 million units in June, while building permits are expected to decline 0.3% to 1.39 million – potentially the lowest level since June 2020.

Mark Yoon, CFA CPA
EVP & CFO of Commercial Bank of California

Thomas McCullough
EVP of Commercial Bank of California

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