US economy contracts while Americans prepare for Trump's "trade war"
The president refuted any connection between his tariffs and the economic contraction, attributing the issue instead to the "Biden overhang."
TroibNews 
President Donald Trump has asserted that his second term would herald a new golden age for the U.S. economy. However, recent economic indicators suggest a different reality, showing more resemblance to pewter than gold.
On Wednesday, the Commerce Department reported an estimated contraction of the U.S. economy during the first quarter of 2025, marking its worst performance in three years. The economy shrank by 0.3 percent, a stark contrast to the 2.4 percent growth in the last full quarter of President Joe Biden’s term. This decline is a significant disappointment to Trump’s supporters and top business leaders who had expected robust growth following his reelection.
In addition, key aspects of Trump's economic strategy, including the anticipated extension of the 2017 tax cuts, have yet to materialize, leaving little buffer against the adverse impacts of his trade war.
“We came into this year with the idea that your tax policy was going to be enough of a tailwind to overcome the negatives from trade,” noted Brett Ryan, a senior U.S. economist at Deutsche Bank Securities. “That script has been flipped.”
The early GDP estimate presents a challenging start for Trump, who won the presidency by pledging to stimulate private investment and enhance consumer spending power. Concerns about a recession have escalated as Trump implemented large tariffs, followed by abrupt reversals, which experts warn could increase costs and dampen investment.
The contraction in the first quarter may push Trump and his advisors to confront the political ramifications of an electorate that appears increasingly disillusioned with key aspects of his economic policies. It risks undermining his political capital at a critical moment as he seeks public support for his aggressive tariff measures.
“There is no good news on the economic front. And since he was elected with that as a primary mandate, they have a problem,” stated Douglas Holtz-Eakin, president of the American Action Forum and a former top economic advisor to Sen. John McCain during the 2008 campaign.
Shortly after the Commerce report was published, Trump took to Truth Social, asserting that he “didn’t take over until January 20th,” and hinted at the need for time for his agenda to yield economic results.
“Tariffs will soon start kicking in, and companies are starting to move into the USA in record numbers. Our Country will boom, but we have to get rid of the Biden ‘Overhang.’ This will take a while, has NOTHING TO DO WITH TARIFFS, only that he left us with bad numbers, but when the boom begins, it will be like no other. BE PATIENT!!!” Trump remarked.
The White House has not yet responded to requests for comment.
However, Trump's tariff strategy has significantly impacted economic growth. In the first quarter, demand for foreign goods surged as businesses rushed to adjust to his new trade barriers, resulting in the Census Bureau reporting a record high trade deficit for goods in March—which negatively influenced the GDP estimate because trade deficits reduce GDP.
While the stock market has responded favorably to recent remarks from the administration about progress on trade negotiations, considerable uncertainty remains regarding the long-term effects of increased trade barriers on growth and prices.
“Tariffs cause hell with the economy,” said economist Arthur Laffer, a Trump supporter who advised the president on tax policy during his first term.
“I don’t know exactly where President Trump thinks things should go. I don’t know where he’s going. I’m very hopeful that he’s going to get tariffs down substantially,” he added. “When he’s in the midst of negotiations, he scares the hell out of me like he scares the hell out of everyone else.”
Consumer sentiment has become increasingly pessimistic, with the Conference Board’s latest survey indicating expectations for the future are at their lowest since 2011. Business leaders share a similarly bleak outlook. Prominent companies like Delta Air Lines, GM, and UPS have already withdrawn their financial forecasts due to tariff-related uncertainties, while influential Wall Street figures such as Ken Griffin and Paul Singer have expressed concerns that Trump’s policies could jeopardize the stability of U.S. markets.
“With each passing day that we get away from the implementation, from Liberation Day, it gets harder to fully restore sentiment,” remarked Tim Quinlan, managing director and senior economist at Wells Fargo. “It’s kind of like trust. It takes a lifetime to build and only a moment to destroy.”
Thus far, negative predictions regarding the economy have not resulted in substantial weaknesses. Treasury Secretary Scott Bessent stated this week that he disregards surveys, asserting that “actual data” on the economy “is actually quite good.” Unemployment remains low, and consumer spending was robust in March. Larry Kudlow, who led Trump’s National Economic Council during the first administration, criticized recent polls showing the president’s low approval ratings as biased.
Nevertheless, the weak GDP report suggests that negative sentiment is beginning to adversely affect tangible economic performance.
Many leading economists, including those from BNP Paribas, Deutsche Bank, and Wells Fargo, had anticipated the GDP figure would reflect a contraction.
Interestingly, real final sales to private domestic purchasers—a measure of consumer spending and private investment—rose a solid 3 percent in the first quarter, indicating that demand remains strong.
However, concerns persist that this demand might dwindle if rising import costs lead to higher prices, or if companies start cutting jobs. The Conference Board’s survey revealed that consumers are scaling back on major purchases and vacations, while expectations for job availability have declined amid a shrinking pool of available jobs.
Trump’s aggressive tariff strategy, along with the unpredictability introduced by his frequent trade escalations and reversals, has hindered U.S. companies' ability to plan for future hiring. According to the Business Roundtable’s quarterly survey, there has been a notable drop in businesses planning to expand their workforces in the coming months.
Earlier this week, the Labor Department reported a decrease of 288,000 job openings, bringing the total to just under 7.2 million in March, the lowest number since late 2020.
“What we found in the past is that trade uncertainty has a depressing effect on firms’ spending on capex and on hiring,” Ryan from Deutsche Bank Securities commented. “A slowdown in hiring means less income growth.”
Thomas Evans for TROIB News
On Wednesday, the Commerce Department reported an estimated contraction of the U.S. economy during the first quarter of 2025, marking its worst performance in three years. The economy shrank by 0.3 percent, a stark contrast to the 2.4 percent growth in the last full quarter of President Joe Biden’s term. This decline is a significant disappointment to Trump’s supporters and top business leaders who had expected robust growth following his reelection.
In addition, key aspects of Trump's economic strategy, including the anticipated extension of the 2017 tax cuts, have yet to materialize, leaving little buffer against the adverse impacts of his trade war.
“We came into this year with the idea that your tax policy was going to be enough of a tailwind to overcome the negatives from trade,” noted Brett Ryan, a senior U.S. economist at Deutsche Bank Securities. “That script has been flipped.”
The early GDP estimate presents a challenging start for Trump, who won the presidency by pledging to stimulate private investment and enhance consumer spending power. Concerns about a recession have escalated as Trump implemented large tariffs, followed by abrupt reversals, which experts warn could increase costs and dampen investment.
The contraction in the first quarter may push Trump and his advisors to confront the political ramifications of an electorate that appears increasingly disillusioned with key aspects of his economic policies. It risks undermining his political capital at a critical moment as he seeks public support for his aggressive tariff measures.
“There is no good news on the economic front. And since he was elected with that as a primary mandate, they have a problem,” stated Douglas Holtz-Eakin, president of the American Action Forum and a former top economic advisor to Sen. John McCain during the 2008 campaign.
Shortly after the Commerce report was published, Trump took to Truth Social, asserting that he “didn’t take over until January 20th,” and hinted at the need for time for his agenda to yield economic results.
“Tariffs will soon start kicking in, and companies are starting to move into the USA in record numbers. Our Country will boom, but we have to get rid of the Biden ‘Overhang.’ This will take a while, has NOTHING TO DO WITH TARIFFS, only that he left us with bad numbers, but when the boom begins, it will be like no other. BE PATIENT!!!” Trump remarked.
The White House has not yet responded to requests for comment.
However, Trump's tariff strategy has significantly impacted economic growth. In the first quarter, demand for foreign goods surged as businesses rushed to adjust to his new trade barriers, resulting in the Census Bureau reporting a record high trade deficit for goods in March—which negatively influenced the GDP estimate because trade deficits reduce GDP.
While the stock market has responded favorably to recent remarks from the administration about progress on trade negotiations, considerable uncertainty remains regarding the long-term effects of increased trade barriers on growth and prices.
“Tariffs cause hell with the economy,” said economist Arthur Laffer, a Trump supporter who advised the president on tax policy during his first term.
“I don’t know exactly where President Trump thinks things should go. I don’t know where he’s going. I’m very hopeful that he’s going to get tariffs down substantially,” he added. “When he’s in the midst of negotiations, he scares the hell out of me like he scares the hell out of everyone else.”
Consumer sentiment has become increasingly pessimistic, with the Conference Board’s latest survey indicating expectations for the future are at their lowest since 2011. Business leaders share a similarly bleak outlook. Prominent companies like Delta Air Lines, GM, and UPS have already withdrawn their financial forecasts due to tariff-related uncertainties, while influential Wall Street figures such as Ken Griffin and Paul Singer have expressed concerns that Trump’s policies could jeopardize the stability of U.S. markets.
“With each passing day that we get away from the implementation, from Liberation Day, it gets harder to fully restore sentiment,” remarked Tim Quinlan, managing director and senior economist at Wells Fargo. “It’s kind of like trust. It takes a lifetime to build and only a moment to destroy.”
Thus far, negative predictions regarding the economy have not resulted in substantial weaknesses. Treasury Secretary Scott Bessent stated this week that he disregards surveys, asserting that “actual data” on the economy “is actually quite good.” Unemployment remains low, and consumer spending was robust in March. Larry Kudlow, who led Trump’s National Economic Council during the first administration, criticized recent polls showing the president’s low approval ratings as biased.
Nevertheless, the weak GDP report suggests that negative sentiment is beginning to adversely affect tangible economic performance.
Many leading economists, including those from BNP Paribas, Deutsche Bank, and Wells Fargo, had anticipated the GDP figure would reflect a contraction.
Interestingly, real final sales to private domestic purchasers—a measure of consumer spending and private investment—rose a solid 3 percent in the first quarter, indicating that demand remains strong.
However, concerns persist that this demand might dwindle if rising import costs lead to higher prices, or if companies start cutting jobs. The Conference Board’s survey revealed that consumers are scaling back on major purchases and vacations, while expectations for job availability have declined amid a shrinking pool of available jobs.
Trump’s aggressive tariff strategy, along with the unpredictability introduced by his frequent trade escalations and reversals, has hindered U.S. companies' ability to plan for future hiring. According to the Business Roundtable’s quarterly survey, there has been a notable drop in businesses planning to expand their workforces in the coming months.
Earlier this week, the Labor Department reported a decrease of 288,000 job openings, bringing the total to just under 7.2 million in March, the lowest number since late 2020.
“What we found in the past is that trade uncertainty has a depressing effect on firms’ spending on capex and on hiring,” Ryan from Deutsche Bank Securities commented. “A slowdown in hiring means less income growth.”
Thomas Evans for TROIB News
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