Associated Press Economics Writer Paul Wiseman
WASHINGTON (AP) – The US economy has shrunk at an annual pace of 0.2% from January to March, January to March, as President Donald Trump’s trade war disrupts businesses.
The first quarter growth was reduced by a surge in imports as American companies rushed to bring in foreign goods before the president imposed a massive import tax.
From January to March, gross domestic product declines – national goods and services production – reversed a 2.4% increase in the fourth quarter of 2024. Imports grew at a rate of 42.6%, the fastest since the third quarter of 2020, cutting points by more than 5% from GDP growth. Consumer spending has also slowed down dramatically.
And federal spending has declined at a rate of 4.6% per year, the biggest decline in three years.
A trade deficit reduces GDP. But it’s mainly a mathematics problem. GDP is supposed to only count domestically generated GDP. So, for example, imports that the government counts as consumer spending in GDP reports when purchasing Costa Rican coffee, must be deducted to prevent artificially inflation of domestic production.
GDP should not be weighed, as the first quarter’s import surge is likely not to be repeated in the April-June quarter.
Business investments rose 24.4% from January to March. The inventory growth added more than 2.6% points to GDP growth in the first quarter as businesses have stock prior to tariffs.
Categories in GDP data measuring the underlying strength of the economy rose at an annual rate of 2.5% from January to March, down from 2.9% in the fourth quarter of 2024, but still remained strong. This category includes consumer spending and private investment, but excludes unstable items such as exports, inventory and government spending.
Trump’s tariffs add considerable uncertainty to the economic outlook. He imposes 10% tariffs on almost every country on the planet, in addition to taxing steel, aluminum and automobiles. A federal court on Wednesday blocked 10% tariffs and certain taxes on imports from Canada, Mexico and China, saying the president had stepped over his authority.
Thursday’s report was the second of three Commerce Department estimates of GDP for the first quarter. The final version will arrive on June 26th.
Original issue: May 29, 2025 9:23am EDT
