US Economy Shrinks 0.5% in Q1 Amid Trump Trade Wars

Photo: Reuters

The US economy became smaller at a rate of 0.5% per year from January to March this year. This happened because President Donald Trump’s trade wars created problems for businesses. The government had earlier thought the economy shrank only 0.2%, but the new report shows it was worse than expected.

One main reason for this drop was that many companies and people bought a lot of foreign goods before new tariffs (extra taxes on imports) were added. Imports went up by 37.9%, which is the fastest rise since 2020. This made the GDP (Gross Domestic Product), which shows the total value of everything made in the country, go down by nearly 4.7%.

In the last three months of 2024, the US economy had grown by 2.4%, so this new drop is the first time in three years that the economy has become smaller.

Consumer spending, which is the money people spend to buy things, also became weak. It only grew by 0.5% in the first three months of this year. Earlier, it was strong at 4% in the last quarter of 2024. An economist from the Bank of Montreal said people spent less because they were worried about the new tariffs.

There is a special part of the GDP report that shows the real strength of the economy. It includes how much people spend and how much companies invest, but it does not include things like exports and government spending. This number grew at a rate of 1.9% from January to March, which is good but less than the 2.9% growth seen in the last quarter of 2024.

Government spending also fell by 4.6%, which is the biggest fall since 2022. Economists say that trade deficits reduce GDP because it only counts what is made inside the country. So if we import things from other countries, it gets subtracted to show the real number.

Experts think this sudden increase in imports will not happen again in the next quarter, from April to June. They expect the US economy to grow by about 3% in this period. The official report for this will come out on July 30.