Stockpiling ahead of tariffs likely hurt US economy in the first quarter

The U.S. economy likely came to a near standstill, or even slipped into contraction, during the first quarter of 2025, as businesses rushed to import goods ahead of steep tariffs, skewing the trade balance and undermining growth. Economists had initially forecast weak GDP growth around 0.3%, but a massive spike in the goods trade deficit in March, fueled by this front-loading behavior, now suggests the quarter may have ended in negative territory. The data’s timing, arriving as President Donald Trump completes his first 100 days back in office, casts a harsh spotlight on his volatile tariff policies.

Consumer and business sentiment have taken a hit, with confidence levels falling and airlines even pulling their financial forecasts for the year due to rising uncertainty. The economic anxiety is being driven by inflation concerns and shifting trade dynamics, which economists say are raising costs across the board. Analysts argue that the “trade shock” is now the dominant story, outweighing any short-term gains from the administration’s broader economic agenda. Some believe the economy could already be on the verge of a recession.

While headline GDP figures are bleak, economists warn they may not tell the whole story. Distortions caused by non-monetary gold imports and other one-off factors complicate the picture, with models from the Atlanta and New York Federal Reserves offering wildly different predictions. Regardless, the underlying trend is hard to ignore: tariffs are disrupting supply chains and suppressing growth. Wall Street, however, seems unconvinced by the gloom—stocks closed higher Tuesday despite the warning signs.

Inflation has also picked up speed, with core prices estimated to have risen at a 3.3% rate last quarter, up from 2.6% in the final months of 2024. Although Trump attempted to ease some of the pressure through a last-minute executive order modifying auto tariffs, the broader landscape remains tense. A 145% tariff on Chinese goods is still in place, and the inflationary effects of these import duties are already being felt by both businesses and households.

Consumer spending—normally the engine of the U.S. economy—has started to sputter. With many households rushing purchases before tariffs kicked in, demand is now softening. At the same time, a cooling labor market means people are spending more cautiously and saving instead. Economists suggest looking beyond the raw GDP number to get a clearer sense of the economy’s direction, but even deeper measures of domestic demand are being warped by the unpredictable rollout of tariff policies. In short, trade friction is not just a policy issue—it’s now an economic reality.

Source: Reuters