In the first quarter of 2025, real US GDP fell by 0.3% on an annualized basis, the Bureau of Economic Analysis (BEA) of the Department of Commerce reported. For comparison, in the last quarter of last year, real GDP grew by 2.4%.
“The decline in real GDP in the first quarter mainly reflected growth in imports, which are subtracted when calculating GDP, and a decrease in government spending. These changes were partially offset by increases in investment, consumer spending and exports“, the BEA noted.
The US economy shrank for the first time since 2022. Average growth in the previous two years was about 3%, Bloomberg reports. She attributes the increase in imports to businesses buying goods before President Donald Trump imposed tariffs.
“If the trade decline is the result of companies buying imported raw materials in advance to get around tariffs, then the trade deficit will reverse in the second quarter. That will lead to some GDP growth. But harmful uncertainty and higher taxes (tariffs are a tax on imports) will push GDP growth back into negative territory by the end of this year,“ said Carl Weinberg, chief economist at High Frequency Economics.
“Financial Times“ notes that in mid-April the IMF lowered its forecast for US GDP growth to +1.8% this year, while the January forecast included growth of 2.7%.
In early April, Trump announced that he would impose tariffs of varying magnitude on dozens of countries around the world: from a base 10% (for most) to over 40% for some countries. The tariff on Chinese goods turned out to be the highest: after several waves of increases, its size reached 145%. China responded by imposing a tariff of 125%. For other countries that faced higher tariffs, Trump suspended them for 90 days, limiting them to a base rate of 10%.
Trump said that the goal of his tariff policy was to correct trade imbalances and encourage the relocation of production to the United States. Bloomberg notes that the Trump administration also sees tariffs as a means to stimulate long-term economic growth by reviving manufacturing.