The U.S. economy shrank by 0.3% in the first quarter of 2025, marking its first contraction in three years as sweeping tariff policies under President Donald Trump rattled trade flows and consumer confidence, according to Commerce Department data released Wednesday.
The annualized GDP drop follows 2.4% growth in the final quarter of 2024 and reflects a sharp loss of economic momentum just as the administration implemented aggressive trade measures. The contraction mirrors the first quarter of 2022, when GDP fell 1% amid volatility in trade and inventory levels.
The report covers the period from January through March, before the most severe tariffs took effect. In April, the White House imposed a 10% universal tariff on imports from most countries, followed by a 145% levy targeting Chinese goods. China responded with a 125% tariff on U.S. exports, effectively halting bilateral trade flows.
The tariff escalation came as Trump ramped up his rhetoric on global trade, ordering retaliatory duties on Canada, Mexico, and the European Union before suspending most of those tariffs for 90 days in the face of market turmoil. Despite temporary relief granted to U.S. automakers and certain electronics, broader negotiations with China remain stalled.
"Trump is charging a 10% universal tariff on imported goods from much of the world, along with a 145% tariff on imports from China," the White House confirmed. The administration has said the tariffs are part of a broader negotiating strategy, but global partners have pushed back. "If one chooses to remain silent, compromise and cower, it will only make the bully want to push his luck more," Chinese Foreign Minister Wang Yi said Monday.
The economic slowdown has been compounded by deteriorating consumer sentiment, which fell 32% in April to its lowest level since the 1990 recession, according to private surveys.
Stock markets have remained volatile. A brief rally last week followed Trump's suggestion that tariffs on China will be reduced "substantially," although he insisted they would not be eliminated. Meanwhile, an executive order was signed to provide credits for automakers assembling cars domestically, softening a 25% tariff on auto imports.
