In the first quarter of 2025, the U.S. economy contracted by 0.3% on an annualized basis, marking the first decline since early 2022. This has raised concerns about a potential recession and a global economic slowdown, reports the Baltimore Chronicle, citing The Guardian.
The main reason for the decline was a sharp wave of imports, triggered by expectations of new tariffs imposed by the administration of President Donald Trump. Businesses and consumers rushed to purchase goods before the tariffs on products from China, Canada, and Mexico came into effect. This led to a significant negative contribution from net exports to GDP, despite moderate growth in consumer spending and investments.
President Trump denied any connection between the tariffs and the economic downturn, blaming the previous administration of Joe Biden. However, economists point out that it was the tariff policy that caused the spike in imports and overall uncertainty. Trump’s trade advisor Peter Navarro stated that the data reflects a strong economic foundation.
Stock markets reacted negatively: the S&P 500 and Dow Jones indices fell by 1.5% and 1.3% respectively. International companies such as Aston Martin and Caterpillar expressed concerns about the impact of U.S. tariffs on global trade.
According to the Organisation for Economic Co-operation and Development (OECD), the trade wars initiated by the U.S. are slowing global growth and contributing to inflation. The OECD has downgraded growth forecasts for the U.S., Canada, and Mexico, warning of possible negative consequences for the global economy.
The U.S. Federal Reserve also revised its GDP growth forecast for 2025 down from 2.1% to 1.7% and raised its inflation projection to 2.7%, citing high uncertainty due to trade policy.
The International Monetary Fund (IMF) cut its U.S. GDP growth forecast for 2025 by 0.9 percentage points, linking it to the effects of new tariffs. The IMF warns of a 40% likelihood of a U.S. recession in 2025.
Economists warn that a combination of tariffs, reduced government spending, and declining consumer confidence could lead to further economic slowdown. Analysts expect the Federal Reserve to come under pressure to lower interest rates in support of recovery.
Earlier we wrote that China pushes tariff on American goods up to 125%.