The US economy contracted during the first quarter of the year, driven by a decline in government spending and a sharp rise in imports as businesses rushed to secure goods ahead of impending tariffs.
According to figures released by the Commerce Department, gross domestic product (GDP) fell at an annual rate of 0.3%, a notable reversal from the 2.4% growth reported in the previous quarter.
This marks the first quarterly economic decline in three years and comes amid heightened global uncertainty stirred by President Donald Trump’s newly introduced tariffs, which have significantly altered international trade dynamics.
Economists cautioned that determining the long-term effects of these tariff changes will require additional time and analysis.
While imports typically detract from GDP growth calculations, the recent surge is expected to normalize in the coming months, and such fluctuations are not necessarily indicative of underlying economic weakness.
Consumer spending, which remains the primary engine of US economic activity, rose by 1.8%—a slowdown compared to the pace set in 2024.
During a televised meeting with cabinet officials, Trump attributed the economic slowdown to policies enacted by his predecessor, Joe Biden, asserting that his administration’s approach would encourage investment and promote robust growth.
“This is Biden,” Trump remarked, downplaying concerns about inflation, supply disruptions, and shortages of products such as toys, as trade volumes with China decline significantly.
“Well, maybe the children will have to settle for two dolls instead of 30. And perhaps those two dolls will cost a bit more than usual,” he added.
The White House responded to the GDP release by describing the data as a “backward-looking indicator.”
“The underlying numbers tell the real story of the strong momentum President Trump is delivering,” stated press secretary Karoline Leavitt.
Since returning to the Oval Office in January, Trump has introduced a series of new tariffs aimed at increasing government revenue and strengthening domestic manufacturing.
Although some policies have been tempered in response to domestic concerns, analysts point out that the United States now faces its highest effective average tariff rate in more than a century.
The current report covers economic activity through the end of March, preceding Trump’s announcement of the expansive “Liberation Day” tariffs targeting China and several other nations,
which triggered significant volatility in equity, currency, and debt markets.
The data showed imports surged by over 40% in the first quarter, while consumer spending increased by 1.8%, down sharply from 4% at the end of 2024.
Experts noted that these results may be influenced by consumers and businesses accelerating purchases ahead of anticipated tariff hikes.
The report also indicated an unexpected uptick in business investment, while final sales to private domestic purchasers—a key measure of demand—grew by 3%, largely unchanged from the prior quarter.
“Overall, this is not as severe as many anticipated,” said Paul Ashworth, chief North America economist at Capital Economics.
Tariffs function as a tax on imports, a move economists widely warn is likely to increase consumer prices.
Several companies, including tool manufacturer Stanley Black & Decker, have already announced price increases in response to the new trade measures.
Should consumers resist these higher costs and demand falters as forecast, further pressure on economic expansion may ensue.
Amid a flurry of corporate earnings announcements, many firms—including automakers such as Stellantis and Mercedes—have signaled they are unable to provide forward guidance, citing ongoing economic uncertainties.
Major US stock indices, having recovered earlier losses as some tariff plans were scaled back, opened lower in response to the GDP figures but finished the day largely unchanged.
Economists at Wells Fargo observed that while trade has imposed the largest drag on growth since the 1940s, the implications of the latest numbers remain unclear.
“The US economy is now at a higher risk of recession than it was just a month ago, but this GDP contraction does not mark its onset,” they noted.
Additional reporting by Bernd Debusmann Jr at the White House