Hit by Trump trade wars, U.S. economy
falls 0.2% in first quarter, an upgrade from initial estimate
[May 30, 2025]
By PAUL WISEMAN
WASHINGTON
(AP) — The U.S. economy shrank at a 0.2% annual pace from January
through March, the first drop in three years, as President Donald
Trump’s trade wars disrupted business, the government said Thursday in a
slight upgrade of its initial estimate. |

The per-gallon price is illuminated on the pump at a Costco warehouse
gasoline station Tuesday, April 1, 2025, in Thornton, Colo. (AP
Photo/David Zalubowski, File) |
First-quarter growth was brought down by a surge in imports as
companies in the United States hurried to bring in foreign goods
before the president imposed massive import taxes.
The January-March drop in gross domestic product — the nation’s
output of goods and services — reversed a 2.4% gain in the
fourth quarter of 2024. Imports grew at a 42.6% pace, fastest
since third-quarter 2020, and shaved more than 5 percentage
points off GDP growth. Consumer spending also slowed sharply.
And federal government spending fell at a 4.6% annual pace, the
biggest drop in three years.
Trade deficits reduce GDP. But that’s mainly a matter of
mathematics. GDP is supposed to count only what’s produced
domestically. So imports — which the government counts as
consumer spending in the GDP report when you buy, say, Costa
Rican coffee — have to be subtracted out to keep them from
artificially inflating domestic production.
The first-quarter import surge likely won’t be repeated in the
April-June quarter and therefore shouldn’t weigh on GDP.
From January through March, business investment surged 24.4%. An
increase in inventories — as businesses stocked up ahead of the
tariffs — added more than 2.6 percentage points to first-quarter
GDP growth.
A category within the GDP data that measures the economy’s
underlying strength rose at a 2.5% annual rate from January
through March, down from 2.9% in the fourth quarter of 2024 but
still solid. This category includes consumer spending and
private investment but excludes volatile items like exports,
inventories and government spending.
Trump's tariffs have added considerable uncertainty to the
economic outlook. He has imposed 10% tariffs on almost every
country on earth in addition to levies on steel, aluminum and
autos. A federal court on Wednesday blocked the 10% tariffs as
well as specific taxes on Canadian, Mexican and Chinese imports,
saying the president had overstepped his authority.
Thursday’s report was the second of three Commerce Department
estimates of first-quarter GDP. The final version arrives June
26.
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