US GDP report: American economy contracts in first quarter amid Trump's tariff war

The US economy unexpectedly shrunk in the first three months of this year, impacted by the early effects of President Donald Trump’s policies, particularly the inconsistent approach to tariffs.

The gross domestic product (GDP) of the world’s largest economy decreased at an annual rate of 0.3 per cent in the first quarter, following a growth rate of 2.4 per cent in the final months of 2024, according to an estimate from the US Commerce Department.

“The downturn in real GDP in the first quarter reflected an upturn in imports, a deceleration in consumer spending, and a downturn in government spending,” the Commerce Department said in a statement.

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The figures, released on the 101st day since Trump’s return to the Oval Office on January 20, were sharply below the market consensus expectation of 0.4 per cent growth, according to Briefing.com.

A strong economy, now teetering

From the Joe Biden administration, Trump had inherited a solid economy that had grown steadily even in the face of high interest rates that the non-partisan Federal Reserve had levied to fight inflation.

However, the Republican president’s erratic trade policies— including imposing and rolling back or halting several rounds of tariffs on imports from almost all trading partners — have paralysed businesses and threatened to raise prices, thus hurting consumers.

The introduction of those tariffs had also sparked a selloff in financial markets, sending volatility surging to levels not seen since the Covid-19 pandemic and spooking investors.

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Business investment rises

Business investment increased significantly, rising at a rate of 21.9 per cent as companies invested heavily in equipment.

Additionally, a measure of the economy’s underlying strength, which is reflected in the GDP data, grew at a healthy annual rate of 3 per cent from January to March, up from 2.9 per cent in the fourth quarter of 2024.

This measure encompasses consumer spending and private investment, while excluding volatile factors such as exports, inventories, and government spending.

With inputs from agencies