The US economy contracted at a 0.2% annual pace from January through March, marking the first quarterly decline in three years, as President Donald Trump’s trade policies disrupted business activity. The Commerce Department released the revised estimate Thursday, slightly improving on its initial figure.The drop in gross domestic product (GDP) — the broadest measure of economic output — follows a 2.4% gain in the fourth quarter of 2024. The contraction was primarily driven by a sharp increase in imports as companies rushed to stockpile foreign goods ahead of Trump’s sweeping tariff hikes, AP reported.“First-quarter growth was brought down by a surge in imports as companies in the United States hurried to bring in foreign goods before the president imposed massive import taxes,” the report said.Imports surged at a 42.6% pace, the fastest since the third quarter of 2020, subtracting more than five percentage points from GDP growth. At the same time, consumer spending slowed considerably, while federal government spending fell at a 4.6% annual rate — the steepest decline in three years.Although trade deficits mathematically subtract from GDP, the effect is largely accounting-based. GDP only includes domestic production, so imports — even if counted as consumer spending — must be excluded to avoid overstating domestic economic activity.The import spike is seen as temporary and may not weigh on GDP in the April–June quarter.Despite the headline contraction, business investment surged 24.4% during the quarter. A buildup in inventories, as firms stocked up in anticipation of tariffs, contributed more than 2.6 percentage points to GDP.A measure of core economic strength — which excludes trade, inventories, and government spending — rose at a solid 2.5% annual rate in Q1, down slightly from 2.9% in the previous quarter.Trump’s broad tariff regime has created added uncertainty for the economic outlook. He has imposed 10% levies on nearly all US trade partners, in addition to targeted tariffs on steel, aluminum, and automobiles.On Wednesday, a US federal court blocked the 10% tariffs along with duties on specific imports from Canada, Mexico, and China, ruling that the president had exceeded his legal authority.Thursday’s release was the second of three estimates of first-quarter GDP. The final version is scheduled for publication on June 26.
