Tariffs, Trade & the GDP Dip [VIDEO]

The U.S. economy declined at an annualized rate of 0.3% in the first quarter of 2025, marking the first negative reading since early 2022 and a significant deceleration from the previous quarter's 2.4% growth rate.  

A substantial increase in imports was the primary factor weighing on GDP, as imports are subtracted in GDP calculations. Per the chart below, this surge was largely attributed to businesses accelerating purchases ahead of anticipated new tariffs on imported goods:

While imports dragged down the headline number, the impact was partially offset by businesses simultaneously building up inventories for the same reason – to stockpile goods before the implementation of tariffs.  In short, the first quarter's economic contraction was heavily influenced by the Trump administration's chaotic rollout of trade policies.

This chart helps put the latest GDP number in perspective:

While the economy shrank in the first quarter, it did so only slightly.  Please keep in mind the current figure represents an initial estimate and is subject to revision as more economic data rolls in.

The U.S. economy is showing mixed signals so far in 2025.  Despite the negative GDP reading, the latest jobs report showed the economy added 177,000 positions in April - well above expectations. Meanwhile, the unemployment rate held steady at 4.2%. The strong job market is helping offset concerns that tariffs and related uncertainty will impact consumer spending.

The Federal Reserve met recently and left short-term interest rates unchanged for the third consecutive meeting:

While the Fed continues to favor a ""wait and see"" approach to adjusting short-term rates, an economic environment where growth slows while inflation remains elevated is still a concern. Fed Chairman Jerome Powell further indicated the Fed is well positioned to respond to future economic developments.

The recent trade announcement between the U.S. and China will last 90 days and lowers U.S. tariff rates on China from 145% to 30%, and China’s duties on U.S. goods to 10%.  This announcement comes on the heels of the U.K. becoming the first country to strike an official trade deal with the U.S.  These developments suggest that the administration and our trading partners are in fact willing to negotiate on trade policy.  This is positive news and decreases the probability of a full blown, protracted trade war.

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