U.S. Economy Contracts 0.2% As Trump Tariffs Bite/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ The U.S. economy shrank by 0.2% in Q1 2025, marking its first contraction in three years. The Commerce Department attributed the drop to a spike in imports as businesses rushed to beat looming Trump-imposed tariffs. Consumer spending also slowed sharply, though analysts say the downturn may be temporary.
Economic Contraction Quick Look
- U.S. GDP fell 0.2% in Q1 2025 — first decline since 2022
- Imports surged 42.6%, driven by companies racing to avoid Trump tariffs
- Import spike slashed over 5 percentage points from GDP
- Consumer spending decelerated significantly
- Drop comes after 2.4% growth in Q4 2024
- Economists expect a rebound in Q2 as import activity normalizes
- Final GDP estimate for Q1 due June 26
U.S. Economy Contracts 0.2% As Trump Tariffs Bite
Deep Look
Trump’s Trade Wars Drive First GDP Decline Since 2022
For the first time in three years, the U.S. economy has contracted — shrinking by 0.2% in the first quarter of 2025 — amid the economic fallout from President Donald Trump’s aggressive new tariff policies.
The Commerce Department released its revised GDP estimate Thursday, slightly improving on the initial 0.4% drop but still reflecting a sharp reversal from the robust 2.4% growth seen in the final quarter of 2024.
Imports Surge Ahead of Trump Tariffs
Much of the contraction was driven by a record-setting 42.6% increase in imports — the fastest quarterly rise since Q3 2020. Companies scrambled to stockpile foreign goods before Trump’s newly announced tariffs took effect, skewing the trade balance and pulling GDP growth into negative territory.
The import spike carved more than 5 percentage points off GDP calculations. While imports are technically counted as consumer spending in economic data, they must be subtracted to avoid overstating domestic production — a core component of GDP.
Consumer Spending Weakens Further
Alongside trade distortions, consumer spending also saw a notable slowdown. As inflation pressure lingers and tariffs threaten to raise costs on everyday goods, American households have begun tightening their wallets — a trend that economists say could weigh further on future growth if not reversed.
What’s Next: Second Quarter Outlook
While the first quarter’s decline is notable, economists caution against panic. The import rush is widely expected to be a one-off event, meaning GDP figures for the April–June quarter may rebound as supply chains stabilize and businesses slow their pre-tariff stockpiling.
“The contraction is real but misleading,” said an economist from Moody’s Analytics. “Q2 should normalize now that the import surge is behind us.”
Thursday’s data was the second of three GDP estimates provided by the Commerce Department. The final revision is scheduled for release on June 26, 2025.
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