The U.S. economy contracted at an annual rate of 0.2% from January to March, marking its first decline in three years, as trade tensions under President Donald Trump disrupted business activity, according to a government report released Thursday. This figure was a slight improvement over the initial estimate.

The drop in GDP for the first quarter was largely due to a sharp increase in imports, as companies rushed to bring in foreign goods ahead of the newly imposed hefty tariffs. This surge in imports reduced the overall GDP growth, reversing the 2.4% gain seen in the last quarter of 2024. Imports grew at an annualized rate of 42.6%, the fastest since mid-2020, cutting more than 5 percentage points from growth. Consumer spending also slowed significantly.

Federal government spending declined by 4.6%, the steepest fall in three years. Since GDP measures domestic production, rising imports reduce GDP, as they must be subtracted to avoid overstating domestic economic activity. This is because imported goods count as consumer spending initially but are excluded to keep GDP calculations accurate.

The import spike seen in the first quarter is unlikely to be repeated in the next quarter and therefore is not expected to impact GDP going forward.

Meanwhile, business investment jumped 24.4% from January to March, and increased inventories—stockpiled ahead of tariffs—added over 2.6 percentage points to GDP growth. An underlying measure of economic strength, which includes consumer spending and private investment but excludes volatile factors such as exports, inventories, and government spending, grew at a 2.5% annual rate, down slightly from 2.9% in the previous quarter but still healthy.

President Trump’s broad tariff policies have introduced significant uncertainty to the economic outlook. He has levied 10% tariffs on imports from nearly every country, in addition to tariffs on steel, aluminum, and autos. However, a federal court recently blocked these 10% tariffs and some specific levies on imports from Canada, Mexico, and China, ruling that the president had exceeded his authority.

This report is the second of three government updates on first-quarter GDP, with the final version scheduled for release on June 26.

By DNN18

Leave a Reply

Your email address will not be published. Required fields are marked *