It is a clear warning signal amid economic policy turbulence: the US economy shrank by 0.5% in the first quarter of 2025 – and thus more sharply than previously assumed. The Commerce Department announced this on Thursday. Back in May, only a 0.2% decline had been reported. It now appears that the economic slowdown is not a temporary blip, but the result of a political strategy that is becoming an increasing burden. At the center of the crisis stands President Donald Trump – more specifically, his renewed trade wars, particularly the abrupt tariff announcements on imports from Europe, China, and Mexico. The result was a frantic buying spree: in January and February, both companies and consumers stocked up massively on foreign goods before the new tariffs took effect. Imports skyrocketed – by a full 37.9%, the highest increase since 2020. Economically, however, this does not represent strength, but the opposite: since imports are mathematically subtracted from gross domestic product (GDP), they pulled growth down by nearly 4.7 percentage points. The government itself tried to portray the import boom as a one-off effect – but there is considerable doubt about that. As long as Trump's economic policy is based on permanent escalation, arbitrary tariff decisions, and withdrawal from multilateral trade agreements, foreign trade remains a long-term risk. There can be no talk of stability, as consumers are tightening their belts – and the government is cutting itself into a deficit.
Particularly alarming: private consumption, the backbone of the US economy for years, lost significant momentum. While household spending had risen by a strong 4% in the fourth quarter of 2024, it grew by a meager 0.5% between January and March. Analysts had expected a much stronger result. The Commerce Department also revised its own preliminary estimate downward. At the same time, federal government spending dropped drastically – a decline of 4.6%, the sharpest since 2022. In light of the Trump-driven budget cuts, particularly in health care, education, and support programs for children, the unemployed, and small business owners, the domestic economy is increasingly weakening itself. The austerity policy especially affects low-income groups – those who would immediately reinvest their money into the consumer cycle. Added to this are the economic side effects of nationwide ICE operations, which are disrupting entire work processes in agriculture, construction, and hospitality. Arrests at bus stops, in cafeterias, and on construction sites have created a climate of constant insecurity – with devastating consequences for production, supply chains, and local markets. Trump's economic plan – once touted as a renaissance of American entrepreneurship – is turning more and more into the disaster it always promised to be.
Even the so-called "core GDP" – which reflects the true strength of the domestic economy, meaning consumption and private investment without volatile factors like exports, inventory, or government spending – raised concerns: growth was only 1.9%, down from 2.9% in the previous quarter and below the earlier estimate of 2.5%. For Ryan Sweet, chief economist at Oxford Economics, this is a "troubling signal" – even if he has not yet revised his short-term forecast. The good news: many economists expect a rebound in the second quarter. According to a survey by the data firm FactSet, GDP is expected to grow by 3% between April and June. The Commerce Department will release a first estimate on July 30. The crucial question will be whether the extreme import boom was truly a one-off effect. But the structural risks remain. The World Bank has already significantly downgraded its global growth forecasts – citing the increasing trade conflicts. And the Congressional Budget Office (CBO) recently warned that while Trump’s tariff policy might reduce the trade deficit, it would come at the cost of a permanently weakened economy. What remains is a disconcerting picture: a government that proclaims economic strength is simultaneously cutting its way into stagnation, unsettling large parts of the working population through militarized deportation raids – and triggering a self-inflicted collapse through chaotic trade policy. America is paying a high price – for a promise that fulfills less and destroys more.
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