WASHINGTON (AP) – The US economy contracted at an annual rate of 0.2% from January to March. President Donald Trump’s Trade War has caused disruptions in business, he noted on Thursday, following a slight adjustment to the initial estimate.
The decrease in first-quarter growth stemmed from a spike in imports, as American businesses hurried to acquire foreign goods before the president implemented a substantial import tax.
From January to March, the gross domestic product, which tracks national production of goods and services, fell, reversing a 2.4% increase in the fourth quarter of 2024. Imports surged at a rate of 42.6%, the fastest pace since the third quarter of 2020, which detracted over 5% from GDP growth. Consumer spending has also seen a significant slowdown.
Moreover, federal spending declined at an annual rate of 4.6%, marking the largest drop in three years.
A trade deficit negatively affects GDP, but it essentially represents a mathematical issue. GDP is meant to reflect only domestically produced goods and services. Therefore, for instance, imports—like Costa Rican coffee counted as consumer spending in GDP reports—must be subtracted to avoid overstating domestic production.
It’s important not to overemphasize GDP, as the initial quarter’s import boom is unlikely to recur in the April-June period.
Business investments increased by 24.4% from January to March. Growth in inventories contributed over 2.6 percentage points to first-quarter GDP, as businesses stocked up prior to the imposition of tariffs.
Categories in GDP data that assess the underlying economic strength rose at an annual rate of 2.5% from January to March, a decline from 2.9% in the fourth quarter of 2024, but still effectively robust. This category encompasses consumer spending and private investment while excluding fluctuating items such as exports, inventories, and government expenditures.
Trump’s tariffs introduce significant uncertainty to the economic landscape. He has enforced 10% tariffs on nearly every nation globally, alongside tariffs on steel, aluminum, and automobiles. On Wednesday, a federal court blocked the 10% tariffs, asserting that the president overstepped his authority, including certain levies on imports from Canada, Mexico, and China.
Thursday’s report was the second of three GDP estimates for the first quarter from the Commerce Department, with the final version set to release on June 26th.
Source: apnews.com