U.S. economy shrank 0.3% in the first quarter as Trump policy uncertainty weighed on businesses
The U.S. economy faced a contraction in the first quarter of 2025, driven by a surge in imports at the beginning of President Donald Trump’s second term in office. This decline in economic growth was influenced by the ongoing trade war that Trump was pursuing, which was expected to have potentially costly consequences.
According to a report from the Commerce Department, the Gross Domestic Product (GDP) for the first quarter fell at a 0.3% annualized pace. This marked the first quarter of negative growth since the first quarter of 2022. Economists had initially anticipated a 0.4% gain in GDP for the quarter, but the unexpected rise in imports as companies and consumers sought to beat the Trump tariffs implemented in April led to a revision of these forecasts.
Imports saw a significant increase of 41.3% for the quarter, with a 50.9% rise in goods imports, the largest growth outside the Covid pandemic since 1974. This surge in imports had a negative impact on GDP, subtracting more than 5 percentage points from the headline reading. On the other hand, exports increased by 1.8%.
Consumer spending slowed down during the period, with personal consumption expenditures rising by 1.8%. Private domestic investment, however, experienced a significant increase of 21.9%, primarily driven by a surge in equipment spending. Federal government expenditures declined by 5.1% for the quarter, which had a negative impact on GDP.
The report on the GDP contraction comes amidst uncertainty surrounding Trump’s trade policy. In early April, Trump announced tariffs on U.S. trade partners, followed by a suspension of those duties for a 90-day negotiation period. The future of the expansion remains uncertain as negotiations continue.
The report also highlighted higher inflation rates, with the personal consumption expenditures price index posting a 3.6% gain for the quarter. This increase in inflation, along with other economic indicators, may influence the Federal Reserve’s decision-making process in its upcoming policy meeting.
Overall, the GDP report raises concerns about the possibility of a recession and underscores the importance of successful negotiations with U.S. trading partners. The economy is still adding jobs and consumers are spending, but the risks loom large as the country navigates through uncertain economic waters.
