U.S. economy contracts for first time in three years amid tariff-driven import surge
In the first quarter of the year, the U.S. economy shrank for the first time since 2022, as businesses rushed to stock up on foreign goods ahead of new tariffs — a move highlighting the disruptive impact of President Donald Trump's trade policies.
The Commerce Department's preliminary gross domestic product (GDP) report, released Wednesday, showed a modest contraction but painted a more pessimistic picture than warranted. While consumer spending slowed, overall growth remained relatively solid, buoyed by increased business investment in equipment.
However, both consumer and business spending were likely influenced by accelerated purchasing in anticipation of rising import costs. As a result, the report added to mounting public criticism of Trump’s economic management, coinciding with his 100th day in office.
Trump’s election win in November had been driven by voter concerns about inflation and economic uncertainty. Now, consumer confidence has fallen to near five-year lows, business sentiment has deteriorated, and airlines have withdrawn their 2025 projections due to uncertainty over discretionary spending — all tied to the ripple effects of the tariffs, which economists view as a hidden tax on households and businesses.
'If the surge in trade was due to companies rushing to import goods before tariffs hit, we should see some rebound in the second quarter,' said Carl Weinberg, chief economist at High Frequency Economics. 'Still, the uncertainty and cost burden from tariffs are likely to weigh on growth again later this year.'
The Bureau of Economic Analysis reported that GDP contracted at an annualised rate of 0.3% in the first quarter — the first decline since early 2022. This drop also reflected reduced federal spending, which many link to sweeping budget cuts and program shutdowns under the Trump administration.
Before the latest trade data, economists polled by Reuters had expected a modest 0.3% GDP gain for the January-March period. But the record-high goods trade deficit in March, driven by a 41.3% spike in imports — the largest since late 2020 — changed that outlook dramatically. The import surge outweighed a small rise in exports, erasing 4.83 percentage points from overall GDP.
Both consumer and capital goods contributed to the import boom. The BEA noted that a spike in silver bar imports, treated as investment rather than consumption, had been excluded from traditional economic activity metrics.
Large volumes of non-monetary gold had also skewed past GDP calculations, causing discrepancies in estimates. On a more positive note, inventory levels rebounded after two quarters of declines, softening the GDP blow from rising imports.
Markets reacted cautiously: U.S. stocks dipped at the open, the dollar strengthened against other major currencies, and Treasury yields rose.
In the first quarter of the year, the U.S. economy shrank for the first time since 2022, as businesses rushed to stock up on foreign goods ahead of new tariffs — a move highlighting the disruptive impact of President Donald Trump's trade policies.
The Commerce Department's preliminary gross domestic product (GDP) report, released Wednesday, showed a modest contraction but painted a more pessimistic picture than warranted. While consumer spending slowed, overall growth remained relatively solid, buoyed by increased business investment in equipment.
However, both consumer and business spending were likely influenced by accelerated purchasing in anticipation of rising import costs. As a result, the report added to mounting public criticism of Trump’s economic management, coinciding with his 100th day in office.
Trump’s election win in November had been driven by voter concerns about inflation and economic uncertainty. Now, consumer confidence has fallen to near five-year lows, business sentiment has deteriorated, and airlines have withdrawn their 2025 projections due to uncertainty over discretionary spending — all tied to the ripple effects of the tariffs, which economists view as a hidden tax on households and businesses.
'If the surge in trade was due to companies rushing to import goods before tariffs hit, we should see some rebound in the second quarter,' said Carl Weinberg, chief economist at High Frequency Economics. 'Still, the uncertainty and cost burden from tariffs are likely to weigh on growth again later this year.'
The Bureau of Economic Analysis reported that GDP contracted at an annualised rate of 0.3% in the first quarter — the first decline since early 2022. This drop also reflected reduced federal spending, which many link to sweeping budget cuts and program shutdowns under the Trump administration.
Before the latest trade data, economists polled by Reuters had expected a modest 0.3% GDP gain for the January-March period. But the record-high goods trade deficit in March, driven by a 41.3% spike in imports — the largest since late 2020 — changed that outlook dramatically. The import surge outweighed a small rise in exports, erasing 4.83 percentage points from overall GDP.
Both consumer and capital goods contributed to the import boom. The BEA noted that a spike in silver bar imports, treated as investment rather than consumption, had been excluded from traditional economic activity metrics.
Large volumes of non-monetary gold had also skewed past GDP calculations, causing discrepancies in estimates. On a more positive note, inventory levels rebounded after two quarters of declines, softening the GDP blow from rising imports.
Markets reacted cautiously: U.S. stocks dipped at the open, the dollar strengthened against other major currencies, and Treasury yields rose.
In the first quarter of the year, the U.S. economy shrank for the first time since 2022, as businesses rushed to stock up on foreign goods ahead of new tariffs — a move highlighting the disruptive impact of President Donald Trump's trade policies.
The Commerce Department's preliminary gross domestic product (GDP) report, released Wednesday, showed a modest contraction but painted a more pessimistic picture than warranted. While consumer spending slowed, overall growth remained relatively solid, buoyed by increased business investment in equipment.
However, both consumer and business spending were likely influenced by accelerated purchasing in anticipation of rising import costs. As a result, the report added to mounting public criticism of Trump’s economic management, coinciding with his 100th day in office.
Trump’s election win in November had been driven by voter concerns about inflation and economic uncertainty. Now, consumer confidence has fallen to near five-year lows, business sentiment has deteriorated, and airlines have withdrawn their 2025 projections due to uncertainty over discretionary spending — all tied to the ripple effects of the tariffs, which economists view as a hidden tax on households and businesses.
'If the surge in trade was due to companies rushing to import goods before tariffs hit, we should see some rebound in the second quarter,' said Carl Weinberg, chief economist at High Frequency Economics. 'Still, the uncertainty and cost burden from tariffs are likely to weigh on growth again later this year.'
The Bureau of Economic Analysis reported that GDP contracted at an annualised rate of 0.3% in the first quarter — the first decline since early 2022. This drop also reflected reduced federal spending, which many link to sweeping budget cuts and program shutdowns under the Trump administration.
Before the latest trade data, economists polled by Reuters had expected a modest 0.3% GDP gain for the January-March period. But the record-high goods trade deficit in March, driven by a 41.3% spike in imports — the largest since late 2020 — changed that outlook dramatically. The import surge outweighed a small rise in exports, erasing 4.83 percentage points from overall GDP.
Both consumer and capital goods contributed to the import boom. The BEA noted that a spike in silver bar imports, treated as investment rather than consumption, had been excluded from traditional economic activity metrics.
Large volumes of non-monetary gold had also skewed past GDP calculations, causing discrepancies in estimates. On a more positive note, inventory levels rebounded after two quarters of declines, softening the GDP blow from rising imports.
Markets reacted cautiously: U.S. stocks dipped at the open, the dollar strengthened against other major currencies, and Treasury yields rose.
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U.S. economy contracts for first time in three years amid tariff-driven import surge
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