US economy shrinks first time in three years amid Trump’s tariffs

The U.S. economy shrank by 0.3% in the first quarter of 2025, marking its first contraction since early 2022.

Economists and markets point to the chaos unleashed by President Donald Trump’s sweeping trade war as the key driver of the downturn. Trump insisted the slump was not caused his administration’s sweeping trade tariffs.

The slump follows a 2.4% growth rate in the final quarter of 2024 and comes amid surging imports—up 41%—as companies rushed to stockpile foreign goods before new tariffs kicked in. That import spike alone subtracted five percentage points from GDP. At the same time, consumer spending slowed to 1.8% growth, and federal spending plunged by over 5%.

Analysts say the economy was essentially stagnant, with “corrosive uncertainty and higher taxes”—as tariffs are effectively import taxes—dragging growth. “We think the downturn of the economy will get worse in the second half of this year,” warned Carl Weinberg of High Frequency Economics.

Trump’s tariff policy has been erratic. In the first quarter, he announced and rescinded multiple duties on Canada, Mexico, and China. Days into the second quarter, he imposed a sweeping 10% global tariff—alongside a 145% levy on Chinese imports—then partially pulled back after markets wobbled.

While the White House insists the tariffs are a negotiation tactic, trading partners are not backing down. “If one chooses to remain silent, compromise and cower, it will only make the bully want to push his luck more,” said China’s foreign minister, Wang Yi.

Markets reacted swiftly. The Dow dropped 400 points at the open, while the S&P 500 and Nasdaq slid 1.5% and 2% respectively. At the same time, inflation indicators ticked upward: the Fed’s preferred measure rose to 3.6%—far above the 2% target—complicating its efforts to balance growth and price stability.

Job growth also shows signs of slowing. ADP reported just 62,000 new jobs in April, far below expectations. “Unease is the word of the day,” said Nela Richardson, ADP’s chief economist.

Democrats were quick to assign blame. “Trump’s red-light, green-light tariffs are shrinking our economy,” said Sen. Elizabeth Warren.

Though core measures of economic strength, like private investment, remain positive, economists warn that without policy stability, the risk of recession looms large.