US economy shrinks in first quarter of Trump 2.0 amid sweeping tariffs
Drop comes amid a huge fall in consumer sentiment, which in April dropped 32% to lowest level since 1990 recession
The US economy shrank in the first three months of the year, according to official data, triggering fears of an American recession and a global economic slowdown.
Donald Trump, who returned to the White House promising to “make America great again”, sought to blame Joe Biden for the figure.
However, economists said it was largely driven by an unprecedented surge in imports, as consumers and companies braced for the president to impose his controversial wave of tariffs.
“This is Biden’s Stock Market, not Trump’s,” Trump wrote on social media, adding that the contraction “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!!!”
Democrats argued the figures were a damning verdict on the new administration’s handling of the economy. Senator Jeff Merkley said: “Trump has been in office for only 100 days, and costs, chaos and corruption are already on the rise. The economy is slowing, prices are going up, and middle-class families are feeling the pinch.”
Gross domestic product (GDP), a key measure of the US economy, contracted by 0.3% in the first quarter of the year, down from growth of 2.4% in the last quarter of 2024. The contraction – the first since the start of 2022 – puts the US on the brink of a technical recession, defined by two quarters of negative growth.
The drop in activity comes amid a huge fall in consumer sentiment, which in April dropped 32% to its lowest level since the 1990 recession.
US stocks dropped on Wednesday morning. By the end of the day, the S&P 500 and Dow Jones had eked out small gains while the Nasdaq had dropped marginally.
On the eve of Wednesday’s GDP report, Trump claimed at a rally in Michigan that he had built “the greatest economy in the history of our country” during his first presidency, which ended in 2021, adding: “We did great, and we’re doing better now.”
Responding promptly to data suggesting otherwise on Wednesday, Trump tried to argue his predecessor was responsible.
“I didn’t take over until January 20th,” he wrote on his Truth Social platform. “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.’”
Trump spent much of the first quarter threatening, and fleetingly implementing, sweeping tariffs on Canada and Mexico, and targeting China with higher duties on its exports.
Days into the second quarter, which was not covered by today’s GDP reading, he ordered even higher tariffs on goods from much of the world, before pulling back the tariffs on all countries but China. As it stands, Trump is charging a 10% universal tariff on imported goods from much of the world, along with a 145% tariff on imports from China.
Seemingly responding to deep fluctuations in the US stock market, Trump has shelved a wave of so-called “reciprocal tariffs” of up to 49% on specific countries, which he halted for 90 days.
He offered some relief to US automakers, who were facing a 25% tariff on all auto imports on Tuesday, signing an executive order that would allow them to receive a credit if they import auto parts but assemble the cars in the US.
Last week, stocks rallied on news that Trump said his tariffs of at least 145% against China – which already has exemptions for some electronics – will be reduced “substantially” as the White House negotiates a deal with Beijing, though he said that the tariff would not be eliminated completely. China has placed a 125% retaliatory tariff on American goods.
Some economists are pointing out that the decline in GDP over the last few months is largely due to the oversized amount of imports that American businesses purchased in anticipation of Trump’s tariffs. When calculating GDP, imports are subtracted to account for the amount of consumption that is not from domestic production.
While the International Monetary Fund has downgraded its forecasts for US growth this year because of tariffs, some economists said the plunge in imports the border taxes will cause from April could mean GDP rebounds in the second quarter, sparing Trump a recession for now.
Elon Musk also played a role in the first quarter contraction. A 5.1% fall in federal spending also complicated the data, as the billionaire presidential adviser’s so-called “department of government efficiency” (Doge) made huge cuts to the executive branch. And consumption slowed from 4% to 1.8%, amid severe weather and a drop in non-profit spending after election donations stopped.
New data released on Wednesday highlighted how new tariffs appear to be significantly slowing trade. In China, factory activity slowed in April, with Beijing blaming “sharp changes” in the global economy as US tariffs pounded exports. Exports from the Chinese e-commerce companies Temu and Shein to the US have plunged 65%, while exports to the EU rose by 28%. Meanwhile, the British sports carmaker Aston Martin said that it would limit exports to the US in the midst of Trump’s tariffs.
Also on Wednesday, the payroll firm ADP said that payrolls in the private sector went up by just 62,000 in April, the smallest gain since July – an ominous sign ahead of Friday’s release of official employment data for April, often used by economists to gauge the health of the labor market.
While the White House has said in recent weeks that Trump’s tariffs are meant to be a negotiating tactic, leaders around the world have said they will retaliate if Trump continues to try to bully them into negotiations.
“If one chooses to remain silent, compromise and cower, it will only make the bully want to push his luck more,” said the Chinese foreign minister, Wang Yi, on Monday.
Trump has been sensitive to criticism of his tariffs and the impact they are having on the economy. At one point over the last month, Trump threatened to remove Jerome Powell from his role as chair of the US Federal Reserve after Powell said that Trump’s tariffs could lead to permanent price hikes.
After markets fell, Trump eventually backed down, telling reporters that he had “no intention” of firing Powell.