Main Street Shrugs at Tariffs, Banks on Growth

It seems like a massive disconnect. But for the payments industry, it’s an opportunity.

One the one hand, the current administration’s shifting tariffs on imported goods and commodities ranging from Swiss watches and Brazilian coffee to Canadian aluminum and steel are a blow to companies reliant on those items. Unless they pivot on sourcing or cut expenses elsewhere, somebody has to eat those costs. and 70% of tariff-related costs will be passed on to shoppers through higher prices, Goldman Sachs assumes. Right now, consumers face an overall average effective tariff rate of 18.3%, the highest since 1934, according to the Yale Budget Lab, equivalent to an average household income loss of $2,400.

On the other hand, America’s smaller businesses are feeling newly chipper.

As of early June, more than 8 in 10 small and mid-sized businesses (SMBs) were confident in their ability to remain operational two years from now, a recent PYMNTS Intelligence report found. This data point, captured in an early-June survey detailed in “Small Business Growth Monitor Q2 2025: From Headwinds to Hope on Main Street,” marks the highest share since PYMNTS Intelligence began tracking business sentiment over three years ago, in July 2022.

Even more striking: Small business confidence spiked at a time when uncertainty about the Trump administration’s flip-flop approach to global trade swelled with off-again, on-again levies and start-and-stop negotiations with major trading partners. Just four months prior in early February, before the April “Liberation Day” tariffs were announced and other “reciprocal” duties hadn’t yet emerged, nearly 1 in 5 smaller businesses were pessimistic about their survival. Almost 7% thought they might not make it.

But by early June, the picture was a lot brighter, with only 5.3% deeming survival unlikely. Even the tiniest firms, micro-SMBs with annual revenues under $150,000, are riding this new wave of optimism, with 3 in 4 indicating they are very or extremely likely to survive the next two years — a solid increase from 68% in March and February.

Confidence With Tripwires

To be sure, it’s not all puppies and rainbows.

Mid-sized businesses with annual revenues between $150,000 and $1 million saw a slight decrease in confidence in June compared to March, when the second-most recent survey was conducted. Industries like construction and utilities, along with independent retailers, are generally seeing improved financial health, while hospitality businesses are struggling the most.

But while micro SMBs pulled overall confidence up, 14% reported being worse off financially than six months ago, double the rate of high-revenue SMBs. These smallest firms are typically disproportionately affected by rising costs for imported goods or services, poor cash flow and late customer payments.

There’s more. Just over 8 in 10 small business owners who applied for a business loan or line of credit within the last year found it difficult to access affordable capital, a Goldman Sachs report said in June.

Forces at Play

The big mystery is, with the economic headwinds, why are many of America’s small businesses newly optimistic? Several factors are at play.

First, consumers. They’re not locking up their pocketbooks, at least not yet. Bureau of Economic Analysis data shows that they nudged up their spending by 0.3% in June, mostly on food, beverages, clothing and shoes, and recreational goods. That slight increase, after flat spending in May, coincided with an equal rise in disposable income . When money came in the door, people spent it, both on essential categories and discretionary items related to experiences and personal care (areas where many small businesses, like nail salons and summer camps, excel). Four in 10 SMBs reported benefiting from rising demand, the PYMNTS Intelligence report shows.

Next, business boot-strapping. The report found that larger SMBs saw gains from introducing new products and services and from efficiency-boosting technology upgrades. Meanwhile, the smallest firms were more likely to emphasize better marketing and customer outreach.

Next, competitive advantages. Andrew Clarke, the president and founder of Ground Floor Partners, a small business consulting firm in Chicago, said Thursday that some of his clients in construction, plumbing and electrical services had kept their prices higher than the competition for years because they can justify that by offering better customer service. If their costs rise due to tariffs, he said, “they just can reduce their margins” and still do well.

Then there’s Uncle Sam. In July, the “One Big Beautiful Bill Act” made a lucrative tax deduction enjoyed by many small businesses and self-employed individuals permanent (it was due to end on Dec. 31). It also increased the deduction starting next year and made it easier to qualify for. While that legislation came after the June survey days, small business likely already knew it was in the works, after the Republican-controlled House of Representatives approved a permanent, expanded deduction in May, making blessing by the Republican-controlled Senate in July a slam dunk.

The deduction allows small business owners to deduct up to 20% of their “qualified,” meaning core, business income, which reduces their taxable income and thus what they owe to the Internal Revenue Service. Starting next year, they can deduct 23%.

Payment Industry Dividend

For the payments industry, the overall small business optimism is a good sign. When SMBs are ready to thrive and grow, they often invest in digital technologies: contactless payments, integrated online checkout, better point-of-sale systems and faster funding solutions. They look for partners who can offer flexible, secure and scalable payment methods. As businesses open new locations, launch eCommerce platforms or expand their service offerings, their need for seamless, cost-effective payments grows in lock step. That’s the silver lining in the tariffs cloud.

Of course, consumers will have to keep spending if small businesses are to grow their sales and merchant accounts and boost demand for their value-added services. And it’s still early in the tariffs game to see how the levies might drive down consumption. Still, the current sentiment suggests an opportunity to support these businesses, not just with payment processing, but with broader tools including analytics, financing and fraud protection.

“Small businesses are no strangers to adversity — resilience is in their DNA,” said Dave Charest, the director of small business success at Constant Contact, a digital marketing platform. “What sets them apart is their ability to stay close to their customers, adapt quickly and deliver real value.”