Washington’s economic engine sputtered in the first quarter of 2025, shrinking at a 0.3% annualized rate, a sharp slowdown from the 1.1% growth in late 2024. The culprit? A frenzy of stockpiling by companies racing to dodge incoming tariffs from President Donald Trump’s trade policies, which kicked into gear after his inauguration. The Commerce Department’s initial GDP estimate, released Wednesday, paints a picture of businesses bracing for impact, with imports surging and trade imbalances dragging down growth.
The numbers tell a stark story. Real gross domestic product, adjusted for inflation, grew at a meager 0.8% before annualization, a far cry from the robust 2.5% pace in the same period last year. Consumer spending, the economy’s backbone, held steady at a 2.5% growth rate, fueled by demand for services like healthcare and dining out. But the trade deficit ballooned, with imports spiking 7.2% as firms stockpiled goods—think electronics, machinery, and raw materials—before Trump’s tariffs, announced on January 20, hit full force. Exports, meanwhile, barely budged, inching up 0.9%, leaving a gaping trade gap that shaved 0.7 percentage points off GDP.
Businesses aren’t sitting still. Major manufacturers, from auto giants to tech suppliers, have been chartering extra cargo ships and cramming warehouses to the rafters. General Motors, in a statement on April 29, scrapped its 2025 profit forecast, citing “uncertainty” from looming trade disruptions. UPS, battered by higher shipping costs, announced 20,000 job cuts on Tuesday to shore up its balance sheet. The ripple effects are clear: firms are front-loading imports to skirt tariffs as high as 25% on goods from China and 10% from Canada and Mexico, set to phase in by June.
Inventories, another sore spot, grew at a sluggish $69.4 billion pace, down from $87.2 billion in the prior quarter. Companies overstocked in late 2024, expecting tariff chaos, but demand hasn’t kept up. Residential investment also tanked, dropping 1.1% as high mortgage rates and tariff-driven material costs choked homebuilding. Government spending, a bright spot, rose 1.3%, propped up by state and local infrastructure projects.
Inflation, though, is a nagging worry. The personal consumption expenditures price index, the Federal Reserve’s preferred gauge, climbed at a 2.3% rate, up from 1.5% in late 2024. Core inflation, stripping out food and energy, hit 2.9%, signaling persistent price pressures that could keep interest rates elevated. Fed Chair Jerome Powell, speaking on April 16, warned that trade disruptions could “exacerbate inflationary trends,” a nod to the tariff turmoil.
The White House, in a statement Wednesday, downplayed the contraction, pointing to “resilient consumer demand” and “historic job gains” under Trump’s first term. But corporate earnings calls tell a grittier tale. Caterpillar, a bellwether for global trade, flagged “significant headwinds” from higher import costs. Smaller firms, less able to absorb the hit, are slashing budgets or passing costs to consumers, risking a slowdown in spending.
As of April 30, the Dow Jones Industrial Average dipped 0.4%, reflecting jitters over the GDP report and tariff uncertainty. Economists at the Bureau of Economic Analysis, tasked with revising the data, will release updates in May and June, but the initial read sets a somber tone. The US economy, caught in a tariff-fueled storm, faces a rocky road ahead.
Consumer spending contributed 1.7 percentage points to GDP growth. Business fixed investment grew 2.9%, led by equipment purchases. The trade deficit reached $971.1 billion annualized, the widest since mid-2022. Disposable personal income, adjusted for inflation, rose 1.1%, supporting spending but outpaced by inflation. The GDP report is the first of three estimates, with revisions due May 29 and June 26.