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The Weekly Bottom Line

Our summary of recent economic events and what to expect in the weeks ahead.

Date Published: July 11, 2025

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Highlights

  • Trade tensions heated up this week, as President Trump announced higher tariffs on 23 trading partners as well as a 50% tariff on copper imports as of August 1st. 
  • If implemented, the combined announcements would add over 2 percentage points to the U.S. effective tariff rate, bringing it to a near century high of 17%. 
  • Minutes from the June 17th-18th FOMC meeting showed a growing divide among policymakers on when to resume rate cuts. A September rate cut is currently 63% priced in by Fed futures markets.

Trade Fireworks in July

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Chart 1 shows the US effective tariff rate dating back to 1915. If this week's announced measures come into effect on August 1st, the effective tariff rate would rise to 17.2% or the highest level in nearly a century. Trade data is reported by the Census Bureau. Effective tariff rates are calculated by TD Economics.

Financial markets were jittery to start the week, with the 90-day delay on the April 2nd “reciprocal tariffs” set to expire on Wednesday. While President Trump ultimately extended the deadline for another few weeks, he simultaneously ratcheted up trade threats on various fronts. He announced a 50% tariff on all copper imports, raised the tariff rate on Brazil to 50% and Canada to 35%, all effective August 1st. For Canada, the details remain sparse, but it’s assumed that all exports that are USMCA complaint – which is just under 60% of goods – would remain exempt from these tariffs. In addition, the administration sent letters to 21 other countries, including larger trading partners like Japan and South Korea, also threatening significantly higher tariffs come August. In total, the 23 countries put on notice account for $827B (or 25%) of annual U.S. imports – after accounting for USMCA compliance. Combined, these additional tariffs would raise the effective tariff rate by 2.2 percentage points if they come into effect August 1st, bringing it to 17%, or the highest level in nearly a century (Chart 1). 

Investors appear to be taking the latest trade escalation in stride. U.S. equity markets briefly hit a new record high on Thursday, but then retraced on Friday in response to President Trump’s tariff threats on Canada. The S&P 500 looks to end the week 0.4% lower but is still up 6% on the year. Meanwhile, longer-term Treasury yields were a touch higher on the week, despite another healthy 10-year Treasury auction on Wednesday. As of the time of writing, the 10-year sits at 4.41%. 

Chart 2 shows the one-year ahead inflation expectations as reported in the New York Federal Reserve's Survey of Consumer Finances. Inflation expectations fell 0.2 percentage points in June to 3% - returning to its pre-tariff levels as of January 2025. Data is reported by the New York Federal Reserve.

But the recent calm that has descended over global financial markets feels eerily tenuous, particularly amidst the ongoing shifts in trade policy and Q2 earnings season set to kickoff next week. Last quarter, much of the guidance companies were providing was purely speculative, as tariff policies were only in the early stages of being rolled out and were also changing on an almost daily basis. However, now that the tariffs have been in place for some time, companies are likely in a better position to gauge their impact and provide updates to earnings guidance for the second half of the year. 

With the inflation impact so far proving more subdued than previously expected, there’s been a growing divide among FOMC members on when to resume rate cuts. Minutes from the June 17-18 meeting released on Wednesday showed that while most committee members favor delaying cuts until there’s more certainty on the inflation and labor market impacts, recent speeches suggest that two board members – Governor Waller and Bowman – support cutting rates as early as July. 

This puts next week’s CPI inflation release under the spotlight. We expect the June CPI report to show inflation having strengthened, with both goods and services price pressures having heated up relative to May. But at this juncture, the uptick is unlikely to unnerve policymakers, particularly with inflation expectations remaining well anchored. According to the New York Fed’s Survey of Consumer Expectations, one-year ahead inflation expectations fell to 3.0% in June – returning to its pre-tariff levels (Chart 2). In our view, this supports the Fed remaining on the sidelines until at least September. 

Thomas Feltmate, Director & Senior Economist | 416-944-5730

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