US GDP shrinks as America stocks up on imports before tariffs kick in
(Originally published May 1 in “What in the World” )The U.S. economy has started shrinking, confirming what Wall Street banks predicted the day before.
The Bureau of Economic Analysis said Wednesday that GDP fell in the first three months of this year an annualized rate of 0.3% compared with the fourth quarter of 2024. GDP rose roughly 2% from the same quarter last year. It’s the first such quarter-on-quarter decline since 2022. While a decline in government spending contributed, the primary cause was a surge in imports as U.S. companies and consumers stocked up on imported goods ahead of the imposition of Trump’s tariffs.
Offsetting the decline was a similar surge in domestic investment in “information processing equipment,” i.e. computers and printers and all the electronic office equipment largely imported from abroad whose prices are about to skyrocket thanks to tariffs. That also shows in a surge in first-quarter inventories. Once the tariffs go into place, though, economists expect a sharp drop in spending, which could send GDP further into decline in the second quarter. That would represent two consecutive quarters of contraction—a recession.
U.S. President Donald Trump posted on his social media platform Truth Social that “Tariffs will soon start kicking in, and companies are starting to move into the USA in record numbers. Our Country will boom, but we have to get rid of the Biden ‘Overhang.’ This will take a while, has NOTHING TO DO WITH TARIFFS, only that he left us with bad numbers, but when the boom begins, it will be like no other. BE PATIENT!!!”
Sales of heavy trucks, a leading indicator of economic activity, fell 6.7% in the first quarter from the same three months of 2024.
Trump’s cuts to clean energy projects have already eliminated 20,000 jobs, according to climate advocacy group Climate Power. And his cuts to federal funding for research, both at government agencies and U.S. universities, threatens to permanently reduce U.S. economic growth, according to new research from American University’s Institute for Macroeconomic and Policy Analysis.
But the U.S. Senate rejected a bill that would have terminated the state of emergency Trump is using as the basis for his tariffs. Even if it had passed, the bill faced certain defeat in the Republican-controlled House of Representatives.
U.S. Trade Representative Jamieson Greer confirmed that Trump and his officials have been lying about holding trade negotiations with China. China has in recent days denied Trump’s assurances that a deal is near in talks with Beijing, saying there have been no talks. Greer on Wednesday confirmed on Fox News that no talks with China are underway.