APRIL 30, 2025
Tariffs toll.
The much-anticipated report on the nation’s economy released Wednesday showed that the U.S. economy shrank during the first three months of the year — offering the first window into the widespread effects of the Trump administration’s tariff policies.
The sweeping tariffs, which have roiled global supply chains and international relations, have left an impression across nearly every part of the nation’s economy, the report shows. Businesses are stockpiling goods, causing imports to surge, and consumers are growing wary of spending too much money amid uncertainty about their financial futures.
The gross domestic product report, released by the Bureau of Economic Analysis, measures the value of goods produced in the country, providing a deep look at the health of the economy across a variety of sectors.
Here’s what you need to know about how tariffs are already affecting the U.S. economy.
Imports are up
Imports surged during the quarter as businesses rushed to “front-load” inventory, or stock up on products before anticipated and threatened tariffs went into effect. Faced with uncertainty about what exactly new tariff policy would bring, companies across the United States started buying equipment, tech products, clothing, food and other goods their businesses rely on.
Imports count against the country’s GDP growth, because they are not produced domestically. So this influx of imports helped shrink the U.S. economy. But that data could be later revised, said Michael Pearce, deputy chief U.S. economist at Oxford Economics, because there’s often a lag between when goods are imported and when they are sold or reported as company inventory.
The trade deficit — the difference between incoming and outgoing goods — is the widest it has ever been, which is expected to be a significant drag on economic growth.
The reason for the surge is that companies are trying to beat tariffs on goods imported from abroad. For now, tariffs are frozen at 10 percent for most global trading partners until at least early July. After that, higher tariffs could be imposed on dozens of countries.
“You’re seeing businesses make a lot more bookings to get those goods in because they know what they’re dealing with for the next 90 days,” said Paul Brashier, global supply chain vice president at ITS Logistics.
However, goods imported from China face a tax rate of about 145 percent on most products, threatening the future of trade with America’s second-largest trading partner.
Higher imports now could lead to plummeting imports later — especially from China
Brashier is already starting to see shippers cancel or suspend their orders on goods from China.
“There will be a drop in May,” he said. “A pretty significant drop. Just because of what China represents.”
An executive of the Port of Los Angeles, which relies heavily on shipments from China, said this month that they expect shipments to fall dramatically in May. “Folks are not shipping out of China right now because they’re not going to pay 2½ times for those goods that are coming in until we get some semblance of a plan,” Gene Seroka, the port’s executive director, said in an April 11 news briefing.
China, second to Mexico as America’s largest trading partner, has hit back at the U.S. with retaliatory tariffs. Trump has recently softened his tariff rhetoric around relations with China, but even if a deal is reached, supply chains cannot adjust immediately.
Diane Swonk, chief economist at KPMG, compared it to the early months of the coronavirus pandemic, when global shipments were disrupted. “It was easier to turn the lights out on plants than it was to ramp them back up again,” she said. “So even if we were to drop tariffs tomorrow, there’s some damage to supply chains.”
The slowdown in shipments could end up worsening inflation if lower inventory levels result in empty store shelves, athey did during the pandemic. Economists expect consumers will begin to feel the effects of rising prices in the next few months.
Consumer spending is slowing
The latest GDP report showed that Americans are still spending, albeit at a slower pace than they have been. What’s worrisome, though, economists say, is that some of that spending was the result of people buying cars, furniture, appliances and clothing ahead of new tariffs. Those big purchases are unlikely to continue in coming months, especially if tariffs result in higher prices for imported goods.
In March, for example, Americans bought nearly $790 billion worth of cars and vehicle parts — an 8 percent increase from the month before — as they tried to outrun sweeping auto tariffs that went into effect in early April, according to new figures from the Commerce Department released Wednesday. But economists say momentum is already waning, with some auto retailers reporting a drop-off in sales this month.
“We sold a lot of cars in March, and despite that, spending is slowing,” said Mark Zandi, chief economist at Moody’s Analytics. “The economy is clearly weakening.”
Consumer spending, which makes up more than two-thirds of the economy, has so far held up, helping prop up broader growth. But economists say they worry that Americans, who already say they’re feeling increasingly gloomy about the economy, may begin pulling back even more this year. Spending growth in the most recent quarter — at 1.8 percent — was markedly lower than the previous quarter’s 4 percent pace.
“We would have had even weaker spending if we had not had the tariffs, because that did pull spending ahead,” said Swonk of KPMG.
Federal government spending fell
Another drag on the economy during the first quarter was a decrease in federal government spending. The GDP report specifically called out a slowdown in defense-related expenditures.
The drop in government spending could be partly, though not entirely, attributed to the Trump administration’s efforts to reduce the size of government, led by DOGE, which stands for Department of Government Efficiency and is housed within the White House. The group, led by billionaire Elon Musk, has been orchestrating funding cuts and workforce reductions across the federal government.
“DOGE cuts are also playing a role [in the economic slowdown],” said Zandi of Moody’s. “The decline in federal spending is having an impact that will likely continue into the current quarter and is also a reason to be nervous.”
