Fresh data reveals that the US economy unexpectedly shrank in the first quarter of the year, primarily due to a spike in imports as businesses and consumers began stockpiling ahead of President Donald Trump’s extensive tariffs.
The gross domestic product (GDP) of the world’s largest economy fell at an annual rate of 0.3 percent in the first quarter, following a growth of 2.4% in the last quarter of 2024, as estimated by the US Commerce Department.
This figure was significantly below the market consensus estimate of 0.4% growth, according to Briefing.com.
According to the Commerce Department’s statement, “The decline in real GDP in the first quarter was driven by an increase in imports, a slowdown in consumer spending, and a reduction in government expenditure.”
Trump denies tariff connection
In a post on social media, President Trump placed the blame for the disappointing economic results on his predecessor, Joe Biden. “This is Biden’s Stock Market, not Trump’s,” wrote the US president on his Truth Social account. “Our Country will thrive, but we must eliminate the Biden ‘Overhang.'”
“This will take some time, has NOTHING TO DO WITH TARIFFS,” he added. “When the boom starts, it will be unprecedented. BE PATIENT!!!” he urged.
The statistics were released on the 101st day since Mr. Trump’s return to office on January 20.
Since then, he has revealed multiple rounds of tariffs, outlining plans in March to impose extensive levies on key trading partners starting in early April, aiming to overhaul US trade relations.
The initiation of these tariffs triggered a selloff in financial markets, causing volatility to spike to levels unseen since the Covid-19 pandemic, thereby alarming investors.
George Washington University economics professor Tara Sinclair noted to AFP prior to the data release, “Typically, government policy remains stable, especially in the first 100 days of a presidency. But this time is different.”
“It is evident that significant policy shifts are directly undermining the economy,” she asserted.
Democratic Senator Elizabeth Warren stated following the GDP release, “100 days into his presidency, Donald Trump’s stop-and-go tariffs are contracting our economy, as businesses hoard imports in anticipation of tariff doomsday.”
In response to April’s significant market fluctuations, the Trump administration announced a 90-day suspension of higher tariffs for many countries to facilitate trade discussions while retaining a base 10 percent rate for most nations.
Sector-specific measures were also introduced for steel, aluminum, and automobiles and parts not produced in the US, along with new broad tariffs totaling 145% on China.
In retaliation, Beijing imposed its own hefty, targeted duties on US products.
‘Direct response’ to Trump
According to the Commerce Department, the US economy expanded by 2.8% last year, and most analysts anticipated a slight cooling of growth this year.
However, following Mr. Trump’s return to office and the implementation of new tariffs, many analysts have significantly downgraded their growth forecasts.
Imports negatively impact growth, counteracting the favorable effects of exports in GDP calculations.
“This surge in imports is directly related to individuals trying to preempt tariffs,” explained Ms. Sinclair from George Washington University. “And that is a direct response to this president’s policies.”
The decline in imports was “partially balanced by rises in investment, consumer spending, and exports,” the Commerce Department noted.
The ramifications of tariffs on growth and inflation pose a “dilemma” for the Federal Reserve as it strives to maintain price stability and maximum sustainable employment, wrote MBA chief economist Mike Fratantoni in a note to clients shared with AFP.
“We anticipate that the Fed will keep rates steady at its meeting next week and will signal that it intends to maintain this level until it becomes apparent whether recession or inflation poses the greater risk,” he stated.
