The US economy experienced its first contraction in three years, shrinking at an annual rate of 0.3 per cent from January to March. This downturn was primarily influenced by a significant increase in imports as businesses sought to stock up on foreign goods ahead of substantial tariffs imposed by President Donald Trump.
The contraction marks a notable decline from a growth rate of 2.4 per cent in the final quarter of 2024, with imports alone detracting 5 percentage points from the overall growth for the first quarter. Concurrently, consumer spending saw a sharp decrease, while federal government expenditure fell by 5.1 per cent.
Despite these challenges, business investment surged, climbing by 21.9 per cent as companies invested heavily in equipment. Moreover, a measure of the economy’s fundamental strength rose at a robust annual rate of 3 per cent, slightly up from 2.9 per cent in the previous quarter. This measure focuses on consumer spending and private investment, omitting volatile components such as exports and government spending.
Trump’s administration inherited a stable economy that was growing steadily, even with high interest rates aimed at combating inflation by the Federal Reserve. However, the President’s unpredictable trade policies, including a staggering 145 per cent tariff on imports from China, have created uncertainty, hindering business operations and potentially increasing costs for consumers.