United States economy shrank in the first quarter of 2025, marking its first decline since early 2022 and causing concern that President Donald Trump’s escalating tariff war with major trading partners Canada and China could tip the country into recession. Gross domestic product (GDP) slipped an annualized 0.3%, reversing the previous quarter’s 2.4% expansion, the Bureau of Economic Analysis reported on Wednesday. The stumble was largely caused by a stampede of pre-tariff buying. Firms raced to fill warehouses with foreign goods before Trump’s sweeping import charges took full effect, causing imports, which are subtracted from GDP, to soar 41.3% and driving the March goods-trade deficit to a record high. “Businesses front-loaded orders to dodge higher duties, but that one-time surge knocked the headline number into the red,” said Paul Ashworth, chief North America economist at Capital Economics. Ashworth predicted a rebound once the unsold stock clears the shelves, “though the underlying picture is hardly booming.” .Wall Street took the news hard. The S&P 500 slid 2.05%, the Dow Jones Industrial Average dropped 1.72%, and the tech-heavy Nasdaq fell 2.53%. The sell-off wiped out roughly $900 billion USD from equity values and snapped a brief rally that had followed earlier signs of tariff relief. Major Wall Street banks reacted by trimming near-term financial forecasts. Goldman Sachs, Morgan Stanley, BNP Paribas, and JP Morgan all lowered their growth estimates, with JP Morgan saying the odds of a recession are at 60%. Traders also shifted into US Treasurys, pushing the yield on the 10-year note below 4% for the first time in two months. .Trump, posting on Truth Social, blamed “Biden’s overhang” for the disappointment, arguing that tariffs will ultimately bring manufacturers back to the US and “make the economy boom like no other.” Trump insisted the contraction “has NOTHING TO DO WITH TARIFFS,” calling for patience as the tariff policy unfolds. Trump’s so-called reciprocal tariff plan, called “Liberation Day” on April 2, put a blanket 10% duty on all imports, slapped a 145% tariff on Chinese goods, and added targeted fees on cars, metals, and other strategic sectors. While implementation has been delayed by 90 days, the uncertainty has already jarred global supply chains and fuelled severe market volatility. Despite the gloomy headline, domestic demand showed some life. Consumer spending went up 3%, and private fixed spending went up, hinting that households and businesses are still opening their wallets for the time being. The first quarter skid ends a run of 11 consecutive quarters of growth and lands at a politically sensitive moment, which is the end of Trump’s first 100 days in office.
