Hit by Trump Trade Wars, US Economy Falls 0.2% in First Quarter, an Upgrade From Initial Estimate

Hit by Trump Trade Wars, US Economy Falls 0.2% in First Quarter, an Upgrade From Initial Estimate
People pack their supplies into their vehicles at Costco Wholesale store in Burbank, California, on Thursday, April 10, 2025. (AP Photo/Damian Dovarganes, File)

WASHINGTON (AP) — The U.S. economy shrank at a 0.2% annual pace from January through March, the first drop in three years, as President Donald Trump’s trade wars disrupted business, the government said Thursday in a slight upgrade of its initial estimate.

First-quarter growth was brought down by a surge in imports as companies in the United States hurried to bring in foreign goods before the president imposed massive import taxes.

The January-March drop in gross domestic product — the nation’s output of goods and services — reversed a 2.4% gain in the fourth quarter of 2024. Imports grew at a 42.6% pace, fastest since third-quarter 2020, and shaved more than 5 percentage points off GDP growth. Consumer spending also slowed sharply.

And federal government spending fell at a 4.6% annual pace, the biggest drop in three years.

Trade deficits reduce GDP. But that’s mainly a matter of mathematics. GDP is supposed to count only what’s produced domestically. So imports — which the government counts as consumer spending in the GDP report when you buy, say, Costa Rican coffee — have to be subtracted out to keep them from artificially inflating domestic production.

The first-quarter import surge likely won’t be repeated in the April-June quarter and therefore shouldn’t weigh on GDP.

From January through March, business investment surged 24.4%. An increase in inventories — as businesses stocked up ahead of the tariffs — added more than 2.6 percentage points to first-quarter GDP growth.

A category within the GDP data that measures the economy’s underlying strength rose at a 2.5% annual rate from January through March, down from 2.9% in the fourth quarter of 2024 but still solid. This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending.

Trump’s tariffs have added considerable uncertainty to the economic outlook. He has imposed 10% tariffs on almost every country on earth in addition to levies on steel, aluminum and autos. A federal court on Wednesday blocked the 10% tariffs as well as specific taxes on Canadian, Mexican and Chinese imports, saying the president had overstepped his authority.

Thursday’s report was the second of three Commerce Department estimates of first-quarter GDP. The final version arrives June 26.

A+
a-

In The News

Health

Voting

Economy

Trump's Tariffs May Cast a Pall Over Rubio's First Official Trip to Asia

WASHINGTON (AP) — Sweeping tariffs set to be imposed by President Donald Trump next month may cast a pall over his top diplomat’s first... Read More

WASHINGTON (AP) — Sweeping tariffs set to be imposed by President Donald Trump next month may cast a pall over his top diplomat’s first official trip to Asia this week — just as the U.S. seeks to boost relations with Indo-Pacific nations to counter China’s growing influence in the region.... Read More

Federal Debt, AI and a Warning for Future US Investment and Economic Security

The United States is approaching an inflection point, one defined not by a single crisis, but by the confluence of... Read More

The United States is approaching an inflection point, one defined not by a single crisis, but by the confluence of several slowly building threats to its long-term economic and national security. These threats include the growing federal debt that threatens the market for U.S. Treasurys, transformative... Read More

Wall Street Mixed Early as Markets Shrug Off Trump's Tariff Deadlines

(AP) — Wall Street was mixed in quiet trading early Tuesday as markets appeared to shrug off new tariff deadlines... Read More

(AP) — Wall Street was mixed in quiet trading early Tuesday as markets appeared to shrug off new tariff deadlines for U.S. trading partners. Futures for the S&P 500 added 0.1% before the bell, while futures for the Dow Jones Industrial Average shed 0.1%. Nasdaq futures... Read More

Fewer Americans Sought Unemployment Benefits Last Week as Layoffs Remain Low

WASHINGTON (AP) — The number of Americans applying for unemployment benefits fell last week, the Labor Department said Thursday, a sign... Read More

WASHINGTON (AP) — The number of Americans applying for unemployment benefits fell last week, the Labor Department said Thursday, a sign that companies aren’t cutting many jobs. Jobless claims for the week ended June 21 dropped 10,000 to 236,000, a historically-low level. The four-week average of claims,... Read More

US Unemployment Claims Dipped to 245,000 Last Week, Hovering at Historically Low Levels

WASHINGTON (AP) — The number of Americans applying for unemployment benefits dipped to 245,000 last week, hovering at historically low... Read More

WASHINGTON (AP) — The number of Americans applying for unemployment benefits dipped to 245,000 last week, hovering at historically low levels, the Labor Department said Wednesday. U.S. jobless claims ticked down from 250,000 the week before. Economists had expected last week's claims to match that at... Read More

'Purgatory:' Fed Officials Left in Limbo as Tariffs Complicate Rate Decision

WASHINGTON (AP) — The U.S. economy is mostly in good shape but that isn't saving Federal Reserve chair Jerome Powell from a... Read More

WASHINGTON (AP) — The U.S. economy is mostly in good shape but that isn't saving Federal Reserve chair Jerome Powell from a spell of angst. As the Fed considers its next moves during a two-day meeting this week, most economic data looks solid: Inflation has been steadily fading, while... Read More

News From The Well
scroll top