U.S. Economy Contracts 0.2% As Trump’s Trade Wars Bite

The U.S. economy shrank at a 0.2% annualized rate in the first quarter of 2025, marking the first contraction in three years, Associated Press reporter Paul Wiseman wrote.

Consumer spending also slowed, and federal government expenditures declined by 4.6%, the sharpest fall in three years.

The decline, slightly revised from an earlier estimate, reflects the economic disruption from President Donald Trump’s trade wars. The drop in gross domestic product (GDP) from January through March followed a 2.4% gain in the final quarter of 2024.

A rush to import goods ahead of sweeping new tariffs led to a 42.6% surge in imports—the fastest pace since Q3 2020—which subtracted more than five percentage points from GDP growth.

Consumer spending also slowed, and federal government expenditures declined by 4.6%, the sharpest fall in three years.

Despite the downturn, business investment jumped 24.4%, and companies added to inventories in anticipation of tariff-related supply disruptions—adding more than 2.6 percentage points to GDP growth. Economists expect the drag from import surges to fade in the April–June quarter.