The US economy contracted at a 0.2% annual pace from January to March, marking its first decline in three years. This downward revision from the initial estimate indicates that President Donald Trump’s trade wars have had a significant impact on businesses.
A surge in imports led by the imposition of massive import taxes drove down GDP growth. Companies rushed to bring in foreign goods before tariffs took effect, resulting in a 42.6% increase in imports and shaving off over 5 percentage points from GDP growth. Consumer spending also slowed sharply, while federal government spending fell at a 4.6% annual pace.
However, despite the challenges posed by trade deficits, economists note that this data is largely due to mathematical calculations. Imports are subtracted from GDP to avoid artificially inflating domestic production. The impact of the import surge is expected to be short-lived, as it’s unlikely to repeat itself in the April-June quarter.
Business investment surged 24.4% during the first quarter, while an increase in inventories contributed over 2.6 percentage points to GDP growth. An underlying strength category within the GDP data showed a 2.5% annual rate from January to March, down from 2.9% in the fourth quarter but still solid.
The uncertainty surrounding Trump’s trade policies has cast doubt on the economic outlook. Tariffs have been imposed on almost every country, as well as levies on steel, aluminum, and autos. A federal court recently blocked specific tariffs on Canadian, Mexican, and Chinese imports, citing overstepping of presidential authority. The Commerce Department is set to release its final first-quarter GDP estimate on June 26.
Source: https://apnews.com/article/economy-trump-tariff-contraction-2c17721ae91e3249850b7a48ab35edc1