U.S. Economy Shrinks 0.5% as Imports Surge Before Tariffs

The U.S. economy shrank by 0.5% in the first three months of 2025, according to a new report from the Commerce Department. This was worse than the earlier estimate of a 0.2% drop. Experts had expected the numbers to stay the same, making this update a surprise.

The slowdown happened mainly because of a sharp rise in imports. Businesses rushed to bring in goods before new tariffs from President Donald Trump’s trade policies could take effect. This rise in imports reduced the country's gross domestic product (GDP), which measures all goods and services made in the U.S. Imports went up by 37.9%, the fastest rate since 2020, and dragged GDP down by over 4.7 percentage points.

This is the first time in three years that the economy has shrunk, after growing 2.4% in the last quarter of 2024. Consumer spending also slowed. It grew by only 0.5%, much lower than the strong 4% growth seen in the last quarter of 2024. The Commerce Department had earlier predicted a better number.

A part of GDP that shows the core health of the economy, excluding exports, inventories, and government spending, rose by 1.9%, which was lower than the 2.9% growth in the previous quarter. Federal government spending also fell, dropping 4.6%, the biggest decline since 2022.

Although trade deficits lower GDP, it’s mostly due to how the numbers are calculated. Since GDP counts only goods made in the U.S., imports are subtracted to avoid double-counting, even if they show up as spending.

Economists believe the large spike in imports was likely a one-time event. A survey by FactSet shows that many experts expect the economy to bounce back, predicting 3% growth in the second quarter of 2025.