The U.S. economy contracted by 0.3 percent between January and March, the first decline in three years, as concerns over the effects of President Donald Trump‘s tariffs sparked a surge of imports.
Why It Matters
Trump introduced sweeping import charges to reduce the U.S. trade deficit, revive domestic manufacturing, and pressure countries like China to change trade practices.
The president escalated tariffs on Chinese imports to 145 percent, citing concerns over fentanyl trafficking and trade imbalances. Beijing retaliated with 125-percent taxes on U.S. goods and restricted exports of critical rare-earth elements. These actions disrupted global supply chains, strained diplomatic relations, and heightened fears of a global economic slowdown.
The first-quarter data will add to fears that the U.S. could slide into recession if there is a prolonged trade war. Polling shows voters are increasingly pessimistic about the economic outlook, fearing higher grocery prices and a recession in particular.
U.S. President Donald Trump on the South Lawn of the White House on April 29, 2025, in Washington D.C.
Win McNamee/Getty Images
What To Know
“The decrease in real GDP [gross domestic product] in the first quarter primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending,” said the Bureau of Economic Analysis (BEA).
The BEA also noted a “deceleration in consumer spending,” but said these factors were partly offset by “upturns in investment and exports.”
The GDP reading, an advanced estimate by the BEA, is a sharp slowdown from the 2.4-percent growth recorded in the final quarter of 2024.
In a research note, however, the consultancy Oxford Economics said its April baseline forecasts after the tariff announcements “anticipate a significant global growth slowdown this year, but not a global recession.”
There was a spike in business investment in equipment, up 22.5 percent. And goods imports were up 50.9 percent in the quarter. Both figures are signs of business activity in anticipation of Trump’s sweeping tariffs, unleashed in April, as firms built their inventories.
Trump had warned of some pain related to his trade policies, likening it to surgery, but says the U.S. economy will emerge stronger.
Apollo Asset Management’s chief economist, Torsten Slok, predicts a downturn by summer, citing supply chain disruptions and declining consumer demand.
Slok, according to CNBC, said that based on the time it takes for goods to arrive from China, U.S. consumers could start to notice trade-related shortages in their local stores next month.
“The consequence will be empty shelves in U.S. stores in a few weeks and Covid-like shortages for consumers and for firms using Chinese products as intermediate goods,” Slok wrote in a note to clients on Friday, per CNBC.
Despite these concerns, President Trump maintains that the economic contraction is unrelated to his tariff policies, attributing it instead to the previous administration. However, many analysts and economists disagree, pointing to the tariffs as a significant factor in the economic slowdown.
“This is Biden’s Stock Market, not Trump’s,” Trump posted to his Truth Social platform after the economic news dropped, and markets braced to open lower.
“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!!!”
What People Are Saying
Massachusetts Senator Elizabeth Warren, a Democrat, posted on X, formerly Twitter: “It’s only been 100 days, but Donald Trump already managed to shrink the economy and spark widespread fears of recession.”
Peter Navarro, a senior White House counselor on trade, told CNBC: “That’s the best negative print I have ever seen in my life. And the markets need to, like, look beneath the surface of that.”
Pointing to the surge in investment, he said: “We really like where we’re at now.”
What Happens Next
The Trump administration has softened its rhetoric on China in recent days amid rising pressure to secure a deal and growing fears of a recession.
U.S. Treasury Secretary Scott Bessent said last week that the current 145-percent tariff rate was “not sustainable,” while Trump and his aides have hinted that negotiations with Beijing are underway.
China on Monday again denied that any talks were taking place and insisted the U.S. must take the first step toward de-escalation.