Economy of United States experiences unexpected contraction during first quarter under Trump administration
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AFP, WASHINGTON
Looks like the shine's off the economic apple pie for now, as fresh data reveals a step backwards for the US economy in the first quarter of this year. The world's largest economy shrank by 0.3 percent during this period, according to data unveiled yesterday by the US Department of Commerce – dashing expectations of a 0.4 percent growth, and marking the first GDP decline in three years.
The uptick in imports and a drop in consumer spending, coupled with a contraction in government spending, are believed to be the primary drivers behind this economic downturn. As a result, US financial markets recoiled, with all three major indices plunging on Wall Street.
Here's where things get tricky – President Donald Trump swiftly pinned the blame on his predecessor, Joe Biden, taking to social media to claim "This is Biden's Stock Market, not Trump's." However, it's essential to clarify that the data being discussed here relates to the first quarter of 2021 – not the current 2025 scenario involving Trump's tariffs.
But, when looking at the aforementioned 2025 tariff implications, fascinating insights emerge. Fast-forward to the first quarter of 2025, and the US economy is said to have witnessed its first GDP contraction in three years – shrinking 0.3 percent compared to 2.4 percent growth in the final months of 2024[2].
Surprise, surprise – imports are again at the heart of the issue. The spike in imports in 2025 is reportedly due to businesses trying to stockpile ahead of impending tariffs, thus counteracting the positive effect of exports on GDP[2]. Consumer spending has also slowed sharply, with businesses delaying expansion plans and hiring[2].
Moreover, the introduction of new 10 percent universal tariffs and rates on Chinese goods is predicted to boost the cost of goods such as electronics, clothing, and household items[3][1], potentially pushing the US toward recession risks by disrupting global supply chains[3][2].
Investors have good reason to be jittery, given the dire warnings from experts. Analysts estimate that the total economic cost of Trump's tariffs (inclusive of foreign retaliation) could reduce U.S. GDP by 1.0 percent and generate $2.1 trillion in tariff revenue over a decade[4].
All in all, while the connection between the current 2021 data and Trump's tariffs remains elusive, the 2025 developments paint a worrisome picture, with the specter of supply chain disruptions, rising prices, and GDP contractions lurking on the horizon.
- The contraction in the US economy in the first quarter of 2025, as revealed by the US Department of Commerce, mirrors a similar GDP decline experienced three years prior, with the economy shrinking by 0.3% compared to a 2.4% growth in the final months of 2024.
- In the first quarter of 2025, imports surged, leading to a GDP contraction, as businesses stockpiled ahead of impending tariffs, countering the positive effect of exports on GDP.
- The enactment of new 10% universal tariffs and rates on Chinese goods in 2025 is predicted to increase the cost of goods such as electronics, clothing, and household items, potentially pushing the US toward recession risks by disrupting global supply chains.
- Analysts estimate that the total economic cost of Trump's tariffs (including foreign retaliation) could reduce US GDP by 1.0% and generate $2.1 trillion in tariff revenue over a decade.
