The US economy unexpectedly shrank in the first quarter of the year due to a surge in imports tied to Donald Trump’s tariff policies, although the president shifted the blame to his predecessor.
The notable rise in imports indicated that businesses and consumers were stockpiling foreign products in anticipation of Trump’s extensive trade tariffs, which were implemented earlier this month.
In response to the economic news, all three major Wall Street indices dropped, with the Nasdaq falling more than two per cent before recovering some of its losses during morning trading, while oil prices continued to decline.
During a cabinet meeting in Washington, Trump claimed that the economic downturn was a consequence of former President Joe Biden’s policies.
Taking a more optimistic approach, he pointed out the “impressive” 22 per cent increase in gross domestic investment during the first quarter. Annual economic growth exceeded two per cent throughout Biden’s presidency, hitting 2.8 per cent in 2024.
The gross domestic product (GDP) of the US, the world’s largest economy, declined at an annual rate of 0.3 per cent in the first quarter, following a 2.4 per cent growth in the last months of 2024, as per the first estimate from the US Commerce Department released on Wednesday.
This contraction fell significantly short of the market expectation of a 0.4 per cent growth, marking the first quarterly decline since 2022.
According to a statement from the Commerce Department, the contraction was attributed mainly to an “increase in imports,” alongside a reduction in consumer and government expenditures.
Following significant market shifts in early April, the Trump administration announced a 90-day suspension of the higher tariffs on numerous countries to facilitate trade discussions, while maintaining a baseline 10 per cent rate for most nations.
Additionally, it introduced targeted measures for sectors such as steel, aluminium, and automobiles and parts not produced in the US, as well as new sweeping tariffs of 145 per cent on goods from China.
In retaliation, Beijing enacted its own steep, targeted measures against American products.
