As President Donald Trump’s trade fights damaged business, the U.S. economy shrunk at a 0.2% annual pace from January to March, the first decline in three years, the government said Thursday, slightly improving its first estimate.
A spike in imports caused by American companies scrambling to import items before the president implemented high import levies slowed first-quarter GDP.
A 2.4% increase in the fourth quarter of 2024 was undone by the January–March decline in the gross domestic product, which measures the country’s output of goods and services. Imports reduced GDP growth by more than 5 percentage points and rose at the fastest rate since the third quarter of 2020, at 42.6%. Additionally, consumer spending fell precipitously.
Additionally, the largest decline in federal government spending in three years occurred at an annual rate of 4.6%.
GDP is lowered by trade deficits. However, that is primarily a mathematical issue. GDP should only include domestically produced goods. To prevent them from inflating domestic production, imports, which the government includes as consumer spending in the GDP report when you purchase, say, Costa Rican coffee, must be deducted.
The import spike in the first quarter is probably not going to happen again in the April–June quarter, therefore it shouldn’t have an impact on GDP.
The growth in corporate investment from January to March was 24.4%. As companies stockpiled up before the tariffs, inventories rose, contributing more than 2.6 percentage points to GDP growth in the first quarter.
From January to March, a GDP data category that gauges the underlying strength of the economy grew at an annual pace of 2.5%, which was lower than the 2.9% growth in the fourth quarter of 2024 but still strong. Consumer expenditure and private investment are included in this category, although volatile factors like exports, inventories, and government spending are not.
The economic future is now much more uncertain as a result of Trump’s tariffs. In addition to charges on steel, aluminum, and automobiles, he has placed 10% tariffs on nearly every nation on the planet. A federal judge ruled on Wednesday that the president had overreached himself and prohibited the 10% tariffs and some levies on imports from China, Mexico, and Canada.
The Commerce Department released its second of three first-quarter GDP estimates on Thursday. On June 26, the final version is sent.
