Negosyante News

May 3, 2025 11:29 pm

US GDP Falls as Pre-Tariff Import Surge Fuels First Economic Contraction Since 2022

The U.S. economy shrank in the first quarter of 2025, marking its first contraction in three years, as businesses rushed to import goods ahead of President Donald Trump’s sweeping tariffs. The surge in imports severely impacted GDP and exposed the economic volatility stemming from the administration’s unpredictable trade policies.

The Commerce Department reported a 0.3% annualized GDP decline, largely driven by a historic 41.3% jump in imports—reminiscent of pandemic-era supply shocks. This import surge slashed 4.83 percentage points from GDP, despite a solid 3% growth in final domestic demand, excluding trade and government spending.

While business investment in transportation and IT equipment rose, much of the quarter’s spending was front-loaded in anticipation of price hikes from incoming tariffs. Trump’s “Liberation Day” duties—announced after the quarter—have already stoked economic uncertainty.

Economists warn that while Q2 may see a temporary rebound as import activity normalizes, the bigger risk is stagflation: slow growth paired with persistent inflation. Consumer sentiment is plummeting, corporate forecasts are being pulled, and markets remain jittery.

Imports of capital goods and consumer products, along with a spike in non-monetary gold and silver, were partly to blame for the trade imbalance. Some of the imported inventory cushioned the GDP blow but could be a drag in future quarters.

Wages grew more slowly, inflation showed mixed signals, and consumer spending—while up 1.8%—slowed sharply from the previous quarter’s 4% pace. March saw a boost from early purchases of goods like vehicles, but economists warn that coming price increases could curb demand.

The Federal Reserve is expected to hold interest rates steady next week. Analysts say this report is a red flag for stagflation and poses major challenges for both markets and policymakers.

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