The Blubber

The U.S. economy shrank in the first quarter of 2025, as a spike in imports—fueled by anticipation of new tariffs—marked the early days of President Donald Trump’s second term and signaled the growing costs of his trade agenda.

From January to March, gross domestic product (GDP), which measures the value of all goods and services produced in the country, declined at an annualized rate of 0.3%, according to a Commerce Department report released Wednesday. The figure is adjusted for both seasonal changes and inflation and represents the first economic contraction since the first quarter of 2022.

Economists polled by Dow Jones had forecast a modest increase of 0.4%, following 2.4% growth in the final quarter of 2024. But expectations shifted rapidly in recent days as a sharp and unexpected rise in imports prompted some analysts to revise their estimates downward. Businesses and consumers, aiming to avoid upcoming tariff hikes introduced in early April, boosted demand for foreign goods.

Imports surged by 41.3% during the quarter, including a 50.9% jump in goods—the steepest increase outside of the pandemic era since 1974. Because imports are counted as a subtraction in the GDP formula, this surge knocked more than five percentage points off the headline growth figure. Exports, by contrast, edged up 1.8%.

Other factors added to the economic slowdown, including weakening consumer spending and a noticeable drop in federal expenditures, a trend some analysts tie to Elon Musk’s cost-cutting initiatives at the Department of Government Efficiency.

“There may be some logic in chalking this up to a rush to stockpile goods ahead of tariffs, but there's no avoiding the reality here—economic momentum has stalled,” said Chris Rupkey, chief economist at Fwdbonds.