The American economy shrank by 0.3 percent during the first quarter of this year, marking the first drop in three years as President Donald Trump’s tariff policies disrupted businesses and their supply chains.
The tariffs imposed on other countries have created uncertainty among both businesses and consumers. The economy, as a measure of GDP, shrank in part because of a rise in imports as companies stockpiled goods to avoid Trump’s tariffs.
Imports increased more than 40 per cent as federal spending fell about five percent during the first three months of the year. The Commerce Department said the decrease in GDP “primarily reflected an increase in imports” and a decrease in government spending.
Before the figures were released, analysts noted that a decreasing GDP figure because of this trend would not show economic weakness; however, the number was much lower than the 0.8 percent rate economists projected.
The number released covers a time period before Trump’s so-called Liberation Day, when he announced widespread tariffs on allies and foes alike.
The Trump administration has unsettled Americans with an escalating trade war with China, as most economists argue that Trump’s attempt to reshape the global trading system will likely lead to an increase in inflation and may trigger a recession.
This marks the worst quarter for the U.S. economy since 2022, when the country was still heavily affected by the Covid-19 pandemic. Comparatively, the economy grew by 2.4 percent in the fourth quarter during the final months of President Joe Biden’s term in office.
Trump quickly took to Truth Social on Wednesday to blame Biden for the dismal numbers.
“This is Biden’s Stock Market, not Trump’s,” he said. “I didn’t take over until January 20th. Tariffs will soon start kicking in, and companies are starting to move into the USA in record numbers. Our Country will boom, but we have to get rid of the Biden ‘Overhang.’ This will take a while, has NOTHING TO DO WITH TARIFFS, only that he left us with bad numbers, but when the boom begins, it will be like no other. BE PATIENT!!!”
Before the release of the fresh economic numbers, analysts broadly expected a decline in performance at the beginning of the year. However, they disagreed on how much the economy would slow down.
S&P Global Ratings told clients in a note that “We anticipate a marked slowdown in the U.S. economy during the first quarter, driven by increasing policy uncertainty surrounding trade, tariffs, and immigration,” according to ABC News. S&P Global Ratings anticipated that the figures would be affected by the increase in imports to avoid the incoming tariffs.
“The first-quarter GDP reading may not provide an accurate reflection of underlying economic conditions because it’s significantly influenced by the frontloading of imports,” said S&P Global Ratings.
A recession is often defined as two consecutive quarters of decline in a country’s GDP adjusted for inflation.
In the face of weakening consumer sentiment and the chaotic state of the markets, a number of important measures remain in reasonably good shape, such as the level of unemployment and job growth.
Data also revealed that the inflation cooled last month, leaving prices below a peak seen in 2022.
After the report was released on Wednesday, U.S. stock futures connected to the Dow dropped by 315 points, or 0.7 percent. Similarly, Nasdaq 100 futures decreased by 1.7 percent, and S&P futures were 1.2 percent lower.
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