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The United States economy shrank in the first quarter of 2025, posting a 0.3% year-on-year decline in inflation-adjusted gross domestic product (GDP), according to data released by the US Department of Commerce on Wednesday. This was in sharp contrast to the strong 2.4% growth in the fourth quarter of 2024, although economists note that the overall figure was distorted by trade data specifics related to President Donald Trump’s planned tariffs.
As The New York Times reported, the decline was largely driven by a surge in imports as businesses and consumers rushed to stockpile goods ahead of expected tariff increases. These trade flows distorted the calculation of GDP, obscuring underlying economic resilience. Indicators of consumer spending and business investment, which are less volatile, show that growth slowed but remained stable in early 2025.
Tariffs cloud economic prospects
President Trump’s aggressive trade policies, which include high tariffs on imports, have already begun to change global trade patterns and cause concern in financial markets. Economists warn that these measures are likely to fuel inflation and dampen growth in the coming months, raising costs for businesses and consumers. First-quarter data showed the first signs of these disruptions, even before the tariffs took full effect.
“There are many reasons to expect a weakening in the underlying trends in the US economy,” Ben Gerzon, an economist at S&P Global Market Intelligence, told The New York Times. Forecasters predict that rising prices and uncertainty will deter spending and investment, which could undermine the strong economic fundamentals.
Basic strength, but warning signs
Despite the decline in overall GDP, key components of the economy remained resilient in the first quarter. Consumer spending, the main driver of growth, continued to support economic activity, and business investment showed stability. However, these positive aspects may dim as tariffs increase costs and create uncertainty, prompting companies to postpone expansion plans and consumers to cut budgets.
A report from the Ministry of Trade highlighted how trade distortions, particularly a surge in imports, exaggerated the GDP decline. Economists emphasise that underlying demand is a better indicator of economic health, but warn that tariff barriers may soon have a greater impact.
Looking to the future
As the Trump administration’s trade policy gathers momentum, analysts expect inflation to rise and economic growth to slow further. The uncertainty surrounding tariffs has already led to cautious business behaviour, which could have knock-on effects on supply chains and consumer prices.
For now, the underlying strength of the US economy is providing some protection, but further developments will depend on how businesses and consumers adapt to the changing trade environment. With tariffs transforming the economic landscape, the coming quarters will test the resilience of the US economic engine.
