U.S. Economy Shrinks for First Time Since 2022 Amid Tariff-Driven Crisis

The U.S. economy shrank in the first quarter of 2025, marking its first contraction in three years, as a massive influx of imports driven by looming tariffs disrupted growth, according to the Commerce Department’s advance GDP report.

The data highlights the economic turbulence sparked by President Donald Trump’s aggressive trade policies.

GDP Decline and Tariff Impact

Gross domestic product fell at a 0.3% annualized rate in the January-March period, reversing a 2.4% growth pace from the prior quarter.

The downturn was largely fueled by a record 41.3% surge in imports, the sharpest since 2020, as businesses stockpiled goods to preempt tariff hikes.

This widened the trade deficit, subtracting 4.83 percentage points from GDP.

“If the blowout on trade was the result of firms pre-buying imported inputs to beat the tariffs, the decay in the trade balance will reverse in second quarter,” said Carl Weinberg, chief economist at High Frequency Economics. “However, corrosive uncertainty and higher taxes — tariffs are a tax on imports — will drag GDP growth back into the red by the end of this year.”

Consumer and Business Resilience

Despite the contraction, consumer spending, which drives over two-thirds of the economy, grew at a 1.8% rate, down from 4.0% in Q4 2024 but still solid.

Businesses also increased equipment investment, particularly in information processing and transportation, though much of this activity reflected pre-tariff front-loading.

“We had numbers that despite what we were handed, we turned them around,” Trump said, emphasizing domestic demand strength.

Economic Uncertainty Looms

The report, capturing data before Trump’s “Liberation Day” tariffs escalated duties on imports, including 145% on Chinese goods, underscores growing economic unease.

Consumer confidence nears five-year lows, and business sentiment has soured.

Senate Democratic Leader Chuck Schumer criticized the administration, stating, “Donald Trump must admit his failure and reverse course, and immediately fire his economic team.”

Economists warn of potential stagflation, with inflation cooling in March but risks rising alongside tepid growth.

The Federal Reserve is expected to hold interest rates steady as markets digest the stagflationary signals.