U.S. Economy Shrinks 0.5% in First Quarter of 2025 Due to Trade Wars

The U.S. economy shrank by 0.5% from January to March due to disruptions caused by President Donald Trump's trade wars, as reported by the Commerce Department. This unexpected downgrade was a result of a surge in imports as companies rushed to bring in foreign goods before potential tariffs were imposed. The initial estimate of a 0.2% decline was revised downwards. This decline in gross domestic product (GDP) marked the first contraction in three years, with imports expanding at the fastest rate since 2020, leading to a significant drop in GDP.

Consumer spending also slowed, growing by only 0.5% compared to the previous quarter's 4%. The underlying strength of the economy, excluding volatile items, rose at a slower pace of 1.9% annually. Federal government spending saw a significant decline of 4.6% annually, the largest drop since 2022.

Trade deficits impact GDP calculations, with imports needing to be subtracted to avoid artificially inflating domestic production. Economists anticipate a rebound in the second quarter, with growth expected to reach 3%. The first estimate for April-June GDP growth will be released on July 30.

According to the source: The Globe and Mail.