United States (U.S.) economy contracted by 0.3% in the first quarter of 2025, marking the first decline in three years and a sharp slowdown from the 2.4% growth in Q4 2024, according to the Commerce Department’s advance GDP estimate.
This downturn, coinciding with the start of President Donald Trump’s second term, was primarily driven by a record surge in imports (up 41.3%), as businesses and consumers stockpiled goods to preempt Trump’s sweeping tariff policies announced in early April.
Imports subtract from GDP, contributing a historic 4.83 percentage point drag on growth. Consumer spending, which accounts for about 70% of the economy, slowed to a 1.8% growth rate from 4% in the prior quarter, reflecting caution amid tariff-related uncertainty.
Federal government spending also dropped sharply (-5.1%), linked to aggressive budget cuts under Trump’s administration, including mass federal layoffs and program terminations led by the Department of Government Efficiency.
Economists note that the negative GDP figure may overstate economic weakness due to the import surge’s temporary nature and solid underlying metrics, such as a 9.8% rise in business investment.
However, consumer confidence plummeted 32% in April to its lowest since the 1990 recession, and stock markets fell, with the S&P 500 down 10% from its February peak.
Trump’s tariffs, including a 10% baseline on all imports and higher duties on countries like China (145%), have sparked trade tensions, with retaliatory tariffs from China (125%) and others.
While Trump blames the Biden administration for the slowdown, economists attribute much of the contraction to his policies, particularly tariffs and policy uncertainty, raising fears of a potential recession if trends persist.
The Federal Reserve Bank of Atlanta had forecast a steeper 2.7% decline, and inflation rose, with the PCE index at 3.6% versus 2.4% in Q4 2024, complicating monetary policy.
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