The U.S. economy shrank in the first quarter of 2025—the first contraction in three years—largely due to a surge in imports as businesses rushed to get ahead of President Donald Trump’s new tariffs. The development highlights the disruption caused by the administration’s unpredictable trade policies.
According to the Commerce Department, Gross Domestic Product (GDP), adjusted for inflation, declined at an annual rate of 0.3% between January and March. This marked a sharp reversal from the 2.4% growth rate recorded in the previous quarter.
While overall GDP fell, underlying indicators such as consumer spending and business investment showed strength. However, analysts suggest much of the spending was likely front-loaded ahead of the tariffs, casting doubt on its sustainability.
The report arrives just as President Trump marks 100 days in office, with polls showing growing public dissatisfaction over his economic management. Trump has blamed former President Joe Biden for the slowdown, pointing instead to a 22.5% jump in business equipment spending and a 3.0% increase in final sales to private domestic purchasers as signs of economic resilience.
However, imports surged by 41.3%—the largest increase since the pandemic-hit third quarter of 2020—widening the trade gap and subtracting a record 4.83 percentage points from GDP. Although some of the imports were stored in inventories, which added 2.25 percentage points back to GDP, the trade imbalance weighed heavily on growth.
Federal spending also declined, likely due to deep budget cuts and program closures under the Trump administration. The full impact of Trump’s sweeping “Liberation Day” tariffs—such as the 145% duty on Chinese goods—was not captured in the first-quarter data but is expected to affect future reports.
Critics, including Senate Democratic Leader Chuck Schumer and Senator Elizabeth Warren, blamed the administration’s erratic trade strategy for the economic downturn. “Trump must admit his failure and reverse course,” Schumer said in a statement.
Wall Street reacted negatively to the GDP data. The Dow Jones Industrial Average fell 422.94 points (1.04%) to 40,104.68, the Nasdaq dropped 2.08%, and the S&P 500 declined 1.49%. The volatility index spiked 10.22% to 26.64, signaling rising investor concern.
Gold and oil prices dipped, while the U.S. 10-year Treasury yield edged down to 4.168% amid increased demand for safer assets. The euro also weakened slightly against the dollar.
Despite the downturn in the U.S., European markets closed higher. The Stoxx 600 rose 0.46%, marking its seventh consecutive gain, buoyed by strong healthcare stocks. Several multinational firms, including GSK and AstraZeneca, reported preparedness for U.S. tariff impacts in their earnings reports.
Meanwhile, the euro zone economy outperformed expectations, growing 0.4% in the first quarter after flatlining at the end of 2024.
Nzubechukwu Eze.
