U.S. economy shrinks in Q1 for the first time in 3 years

According to new data from the U.S. Department of Commerce on Thursday, the U.S. economy backtracked for the first time in three years.

A worker from the popular American big box store chain Walmart.

On Thursday, Washington modified its previous estimate for the change in the national gross domestic product to a decrease of 0.2% in the first three months of the year: January, February, and March. This decrease completely wiped out previous economic growth from the last three months of 2024, which saw significant improvements to the GDP nominal (2.4% growth). Furthermore, Q1 of 2025 saw an over 42.6% increase in imports from overseas, contributing to the widening trade deficit and the reduced economic output as the value of exports is threatened. Government spending also fell by 4.6%, representing the largest drop in three years.

It is evident that President Trump's trade policies have contributed to this large economic decline. The president has imposed universal tariff rates on all goods at a country-wide basis of at least 10%, with other countries like China receiving even higher rates. These steeper tariff rates restricted free trade, meaning that the distribution of cheaper goods into the country decreased, resulting in an increase in inflation backed up by April CPI data. In addition, these tariffs have resulted in other countries attempting to contradict by imposing tariffs of their own on American goods - so-called "retaliatory" tariffs. These prevented American exports from reaching the global market, disproportionately affecting smaller American businesses which rely on foreign exports, especially to emerging economies.

Now more than ever, the risk of recession has reached a new peak. If the decline continues into Q2 of 2025, the U.S. government would have to signify an official recession, the first of its kind since 2020. J.P. Morgan has its recession risk at 40%, a decrease from its previously estimated 60% but still very worrying.

Stocks Friday morning fell in response to this data and Trump's exacerbating of the situation by threatening additional tariffs on China.