Donald Trump’s tariff wars deal a blow! US economy shrinks 0.5%; worse than estimates

The US economy shrank by 0.5% on an annual basis in the first quarter of 2025, as President Donald Trump’s trade war prompted a rush of imports, disrupting businesses, the commerce department announced on Thursday.This unexpected sharp downgrade from an earlier estimate of a 0.2% decline, reflects the economic fallout from Trump’s trade policies, which saw American firms scrambling to import goods before tariffs could take effect. The surge in imports, up by a staggering 37.9%, the fastest pace since 2020, dragged down the GDP by almost 4.7 percentage points, AP reported.This contraction marks the first quarterly decline in the US economy in three years, reversing the 2.4% growth recorded in the final three months of 2024.Consumer spending also took a significant hit, slowing to just 0.5% growth, a steep fall from the 4% recorded in the previous quarter and well below earlier government estimates. A key measure of the economy’s underlying strength, grew at an annual rate of 1.9% between January and March. That’s a noticeable slowdown from the 2.9% pace seen in the final quarter of 2024. The category includes consumer spending and private investment while excluding more volatile components such as exports, inventories and government spending. Federal government spending also slumped, falling at a 4.6% annual rate, the steepest decline since 2022.How did imports drag down US GDP ?GDP or the Gross Domestic Product includes only what is produced domestically, not what is imported from foreign lands. Hence, the imports that are reflected in the GDP report as consumer spending or business investments, must be subtracted to avoid inflating figures.Economists, however, believe the slump may prove short-lived. The import-driven distortion seen in the first quarter is not expected to repeat in the April-to-June period. Many forecasters anticipate a rebound, with second-quarter GDP growth projected to reach 3%, according to a FactSet survey.The first official estimate of second-quarter GDP is due on 30 July.