Official data show that the U.S. economy shrank in the first quarter of 2025, marking its first contraction since early 2022, as imports surged before President Trump's grand new tariffs delayed output.
GDP fell 0.3% annually, ending a strong post-pandemic growth period, according to the U.S. Bureau of Economic Analysis (BEA) (BEA). The figure is worse than analysts' expectations of 0.2% declines and has declined from the 2.4% growth rate in the previous quarter.
The contraction is largely due to the rising volume of imports, as companies are eager to store foreign goods before the tariffs take full effect. This surge negatively impacted the growth figures as imports were subtracted from GDP. The U.S. commodity trade deficit also reached record highs in March.
Wall Street responded sharply to the news, with early losses in major indexes. But the market stabilized: Dow Jones Jones rose 0.4%, the S&P 500 rose 0.2%, and Nasdaq stock fell from a steep decline to below 0.1%.
Economists believe that the downturn may be temporary. Paul Ashworth of Capital Economics noted that the surge in imports has been reversed and “should promote second-quarter GDP.” Ing's James Knightley said businesses “try to try to introduce as many goods as possible before the tariffs.”
The economic downturn coincides with the launch of Trump's “Liberation Day” tariff plan announced on April 2. The plan imposes a 10% blanket tariff on all imports, a 145% fee for Chinese goods, and a specific tax on other sectors. Trump then delayed the implementation of most tariffs by 90 days, but the core allegations remain.
Despite the contraction, Trump blamed his predecessor on the Truth Society post:
“This is Biden's stock market, not Trump's stock market. Tariffs have nothing to do with it. Our country will flourish… Patience!!!”
Apart from economic headwinds, government spending has declined, in part due to a sharp decline in public sector staff overseen by Elon Musk, head of the Ministry of Government Efficiency (DOGE).
Major investment banks including Goldman Sachs, JP Morgan and Morgan Stanley have since lowered their growth forecasts. JP Morgan now sees a 60% chance of recession in the coming months.
Inflation also shows signs of a re-acceleration. The Core Personal Consumption Expenditure (PCE) index is the Fed's preferred inflation scale, rising to 3.5%, from 2.6%, and above expectations.
Meanwhile, the eurozone economy brought a rare highlight, growing 0.4% in the first quarter, twice the rate in the previous quarter. Germany and France narrowly avoided the recession and were inspired by lowered interest rates by the European Central Bank and a new 500 billion euro investment plan announced by Germany's incoming prime minister Friedrich Merz.
However, analysts warn that Trump's tariffs, which currently bring the EU's package to 10%, could rise to 20%, could impact future European growth. Christophe Boucher of ABN AMRO called the latest euro zone GDP data “a good surprise” but warned that it “does not consider the shock of “Liberation Day.”
As global markets adapt to Trump’s trade protectionist policies, economists are paying close attention to ensure deeper signs of disruption and whether the U.S. contraction marks the beginning of a broader slowdown.
