The American economy contracted at the start of the year — a predictably charming outcome — as companies scrambled to import goods ahead of Donald Trump’s impending tariffs, and consumers began to show a modest flicker of restraint. It’s the first quarterly shrinkage since 2022 and the most unambiguous indication yet that the president’s ‘America First’ economic playbook may come at a rather steep cost.
Adjusted for inflation, GDP declined by 0.3% in the first quarter, a far cry from the robust 3% average growth seen in the preceding two years. It is the opening act in a somewhat chaotic economic drama.

The data revealed that the rush to stockpile imports—before Trump’s tariffs could make them unaffordable—resulted in a nearly five full percentage point reduction in GDP. This is a record and not the good kind. Federal spending cuts also contributed to the decline, perhaps to make room for more essential expenditures, such as trade wars and campaign rallies.
Despite the headline contraction, some inner workings of the economy remained surprisingly upbeat. Consumer spending — the stalwart engine of U.S. GDP — grew by 1.8%, its weakest showing since mid-2023 but still more than economists had expected. Business investment in equipment surged at its fastest pace since 2020, a flicker of optimism amid gathering storm clouds.

Meanwhile, the administration’s favourite spin artist, trade adviser Peter Navarro, declared the GDP report “the best bad number I’ve ever seen,” which is a bit like praising a plane crash for its aerodynamic flair.
Imports surged by 41.3% annually — the sharpest leap in nearly five years. Naturally, since these goods were not made in America, they are deducted from the GDP. Economists expect the trade deficit to narrow next quarter, offering a brief, illusory rebound. However, beyond that, higher tariffs are expected to disrupt supply chains, dampen corporate investment, and trigger retaliatory measures abroad. In short, it is the recipe for a recession, if not a full-blown economic farce.
Markets were unimpressed. The S&P 500 dipped, Treasury yields fell, and Trump — never one to miss an opportunity to pass the buck — posted on social media blaming Joe Biden for the market’s jitters and assuring everyone that the economic benefits of his policies would “take time.”

Final sales to domestic purchasers — a preferred gauge of real demand — rose 3%, a solid figure. But let’s not get carried away. This likely reflects panic-buying more than genuine confidence. Surveys show that consumers are increasingly uneasy, especially lower-income households, which are being crushed by high prices, and wealthier ones, which are rattled by a wobbly stock market.
Businesses are hardly brimming with cheer either. Tractor Supply and Whirlpool noted weakening demand for big-ticket items, and Carter’s, the children’s clothing brand, described recent months as “one of the most turbulent market environments in memory.” There is nothing like instability to keep your CFO awake at night.
Meanwhile, public spending fell 1.4%, primarily due to an 8% decline in defence expenditures. Trump, in a flourish of statesmanship, had paused military aid to Ukraine—possibly to finance the economic fiction at home.

Unsurprisingly, inflation refuses to play ball. The Fed’s preferred core index rose 3.5%, the fastest pace in a year, placing monetary policymakers in a tight spot. They’re in no rush to cut interest rates while the economic dust kicked up by Trump’s tariffs clouds visibility.
Speaking of tariffs, even with a 90-day reprieve on the most draconian measures, America’s effective tariff rate now stands at nearly 23% — the highest in over a century. Protectionism is apparently patriotic, even when it punches your own economy in the face.
Trump and his team continue to promote tariffs as a tool for revitalising manufacturing, boosting exports, and closing deficits. In reality, they’re achieving the economic equivalent of setting your house on fire to raise the property value.

In summary, the White House calls it strategy. Economists call it self-sabotage. As usual, the American consumer will end up footing the bill—one tariffed product at a time.