BY LUCIA MUTIKANI
WASHINGTON—The US economy contracted for the first time in three years in the first quarter, swamped by a flood of imports as businesses raced to avoid higher costs from tariffs and underscoring the disruptive nature of President Donald Trump’s often chaotic trade policy.
The Commerce Department’s advance gross domestic product (GDP) report on Wednesday, however, grossly exaggerated the economy’s fading prospects. Though consumer spending slowed considerably from the fourth quarter, the pace of growth remained healthy. Businesses also boosted investment in equipment, mostly information processing and transportation.
Nonetheless, both consumer and business spending likely reflected front-loading before the import duties kicked in. As such, the report reinforced Americans’ growing disapproval of Trump’s handling of the economy as he marks 100 days in office.
Trump swept to victory last November on voter angst over the economy, especially inflation. Consumer confidence is near five-year lows and business sentiment has tanked, while airlines have pulled their 2025 financial forecasts, citing uncertainty over spending on nonessential travel because of tariffs, which economists said will raise costs for companies and households.
Economists anticipated the economy would rebound in the second quarter as the drag from imports fades, but probably not enough to avoid a recession or a period of tepid growth and high inflation, commonly referred to as stagflation. Resolving the uncertainty caused by the Trump administration’s ever-shifting tariffs position was crucial, they said.
“If the blowout on trade was the result of firms pre-buying imported inputs to beat the tariffs, the decay in the trade balance will reverse in second quarter,” said Carl Weinberg, chief economist at High Frequency Economics. “That will generate some GDP growth. However, corrosive uncertainty and higher taxes – tariffs are a tax on imports – will drag GDP growth back into the red by the end of this year.”
Gross domestic product decreased at a 0.3 percent annualized rate last quarter, the first decline since the first quarter of 2022, the Commerce Department’s Bureau of Economic Analysis said in its advance estimate of first-quarter GDP.
It was also weighed down by a decline in federal government spending, likely linked to the White House’s aggressive funding cuts, marked by mass firings and shuttering of programs.
The report captured activity before Trump’s “Liberation Day” tariffs announcement, which ushered in sweeping duties on most imports from the United States’ trade partners, including jacking up duties on Chinese goods to 145 percent, sparking a trade war with Beijing.
Trump and his aides struggled to coalesce around a message about the GDP number. Trump blamed former President Joe Biden for the weak GDP and sought to highlight strong domestic demand, including the rebound in business spending as outlays on equipment surged at a 22.5 percent rate. – Reuters
