us economy shrinks: tariff fears trigger import spike

2025-04-30 general

Washington, D.C., Wednesday, 30 April 2025.
the us economy unexpectedly contracted by 0.3% in the first quarter of 2025. this marks the first decline since 2022. a major surge in imports, driven by businesses trying to get ahead of expected tariffs, is the main cause. consumer spending also slowed. analysts are concerned about policy uncertainty and its effect on business investment and economic growth. the contraction has fueled speculation about potential interest rate cuts by the federal reserve. some analysts even warn of a possible recession if the trend continues.

Economic contraction details

The Commerce Department reported a 0.3% annualized decrease in gross domestic product (GDP) for the first quarter of 2025 [2]. This is a significant drop from the 2.4% growth seen in the last quarter of 2024 [6]. The contraction primarily reflects a surge in imports, which climbed by 41.3%, with goods imports specifically jumping by 50.9% [2]. At the same time, exports only edged up by 1.8% [2]. Consumer spending also grew at a slower pace, increasing by 1.8%, the weakest gain since the second quarter of 2023 [2].

Tariff implications and market reaction

The import surge is largely attributed to businesses trying to import goods before potential tariffs take effect [1][2]. President Trump had announced tariffs on U.S. trade partners in early April, later suspending them for a 90-day negotiation period [2]. This policy uncertainty has unsettled investors, contributing to market volatility [6]. Stock market futures slipped, and Treasury yields increased on April 29, 2025, in response to the GDP report [2]. The dollar index is poised for nearly a 5% decline in April [7].

Expert opinions and revised forecasts

Economists are expressing concerns about the economic slowdown. Chris Rupkey, chief economist at Fwdbonds, stated that growth has simply vanished [2]. Robert Frick, a corporate economist with Navy Federal Credit Union, noted that the balance of trade was affected by companies importing goods in anticipation of tariffs and that consumer spending grew at a relatively weak pace [2]. The Conference Board has revised its US GDP growth forecast for the year to 2%, down from 2.3% [4]. They also lowered their Q4 over Q4 growth estimate to 1.5% from 2% [4].

Potential fed response and future outlook

The contraction has increased speculation about potential interest rate cuts by the Federal Reserve [6]. Markets are already pricing in a rate cut at the June meeting and a total of three to four rate cuts by the end of the year [2]. However, Yelena Shulyatyeva, a senior US economist for The Conference Board, anticipates high inflation, creating a dilemma for the Fed [4]. The Atlanta Fed’s GDPNow estimate for Q1 2025 was -2.7 on April 29, 2025, further highlighting the economic concerns [3].

Bronnen

trade policy economic contraction