US Economy Contracts!

The US economy unexpectedly contracted in the first three months of this year (2025) due largely to a surge in imports ahead of the introduction of sweeping tariffs. The gross domestic product (GDP) of the world’s largest economy decreased at an annual rate of 0.3% in the first quarter (Q1), after growing 2.4% in the final months of 2024. The introduction of tariffs sparked a selloff in financial markets, sending volatility surging to levels not seen since the Covid-19 pandemic and spooking investors.

Following April’s dramatic market movement, the Trump administration announced a 90-day pause to the higher tariffs for dozens of countries to allow for trade talks, while maintaining a baseline 10% rate for most countries. It also announced sector-specific measures on steel, aluminium and automobiles and parts not made in the US, and new sweeping tariffs totalling 145% on China.

 

Source: https://en.wikipedia.org

Since Trump’s return to office, and the introduction of new tariffs, many analysts have sharply cut their growth outlooks. Imports have a negative effect on growth and counteract the positive effects of exports in the GDP calculations.

Tariff money collected by the U.S. government from importers could be misused, beyond the effects on inflation and consumers. Jack Ma, one of the richest entrepreneurs has said, “In the past 30 years, America has had 13 wars at a cost of $14.2 trillion.” He also questioned America’s decision to bankroll Wall Street after the 2008 financial crash, arguing the money would have been better spent in other areas.

It’s not globalization – and everything that comes along with it, that’s to blame for America’s woes. It’s the way the country’s elite managed the process. “It’s not those other countries that stole American jobs; it was U.S. strategy – that you did not distribute the money in a proper way.” Outsourcing was a U.S. strategy not China stealing jobs and investments. But this is difficult for Trump to accept, because he likes to blame others for all his problems. That too, for a potential U.S. self-induced recession.

References:

US economy unexpectedly contracts in first 3 months of Trump presidency, AFP/FMT, April 2025

Jack Ma: America has wasted its wealth, Stephanie Thomson, World Economic Forum, 18 January 2017