Recent data reveals that the US economy saw an unexpected contraction in the first quarter of the year. This decline can largely be attributed to a significant increase in imports, as both businesses and consumers prepared for the rollout of President Donald Trump’s extensive tariffs.
- Advertisement -
According to the US Commerce Department, the nation’s gross domestic product (GDP) decreased at an annual rate of 0.3% in the first quarter, following a growth rate of 2.4% in the closing months of 2024. This news came as a shock, coming in markedly below market expectations, which had anticipated a growth of 0.4%, as noted by Briefing.com.
“The downturn in real GDP in the first quarter reflected an increase in imports, a deceleration in consumer spending, and a decrease in government expenditures,” the Commerce Department stated.
Trump’s Response to the Economic News
In a post on social media, President Trump attributed the economic downturn to his predecessor, Joe Biden. He stated, “This is Biden’s Stock Market, not Trump’s.” In his message on Truth Social, he expressed optimism about the future, saying, “Our Country will boom, but we have to get rid of the Biden ‘Overhang.'” He added, “This will take a while, has NOTHING TO DO WITH TARIFFS. When the boom begins, it will be like no other. BE PATIENT!!!”
The data was released on the 101st day since Mr. Trump resumed office on January 20. During this period, he has initiated several rounds of tariffs, outlining plans in March to impose significant levies on key trading partners starting in early April, aiming to reshape US trade relations.
The announcement of these tariffs triggered a sell-off in financial markets, leading to a surge in volatility reminiscent of the early days of the Covid-19 pandemic, causing concern among investors.
“Usually, government policy doesn’t change significantly, especially in the first 100 days of a presidency,” remarked Tara Sinclair, an economics professor at George Washington University, prior to the release of the data. “But this one’s different.”
She further emphasized, “I think it’s pretty clear that there were dramatic policy changes that are directly weakening the economy.” Following the release of GDP figures, Democratic Senator Elizabeth Warren remarked, “100 days into his presidency, Donald Trump’s red-light, green-light tariffs are shrinking our economy, with businesses stockpiling imports in anticipation of tariff doomsday.”
Market Reactions and Economic Adjustments
In light of the drastic market fluctuations in April, the Trump administration announced a 90-day pause on higher tariffs for numerous countries to facilitate trade discussions, while maintaining a base rate of 10% for most nations. Additional measures were introduced targeting specific sectors, including steel, aluminum, and automobiles, alongside sweeping tariffs of 145% on goods from China, which incited reciprocal tariffs from Beijing.
Total US economic growth was recorded at 2.8% last year, according to the Commerce Department, with many analysts expecting a slight cooling this year. However, following Mr. Trump’s return to office and the initiation of new tariffs, numerous experts have downgraded their growth forecasts.
Tariffs negatively influence growth and offset the benefits of exports in GDP calculations. “This spike in imports is directly linked to individuals and businesses trying to get ahead of tariffs,” Ms. Sinclair noted. “And that is a direct response to the policies of this president.” The Commerce Department reported that the reductions in imports were “partly offset by increases in investment, consumer spending, and exports.”
The Federal Reserve faces a complex challenge in assessing the impact of tariffs on both growth and inflation as it strives to maintain stable prices and maximize sustainable employment. As MBA Chief Economist Mike Fratantoni observed, “We expect that the Fed will hold rates steady at its meeting next week and will indicate that it will continue to hold at this level until it becomes clear whether a recession or inflation poses the greater risk.”
Edited By Ali Musa
Axadle Times International–Monitoring.
