The Slowdown in the U.S. Economy: What Lies Behind the Numbers?

The U.S. economy contracted in the first quarter of the year. It shrank by 0.3% on an annualized basis. At first glance, this datum appears worrying for the U.S. However, we need to consider the story behind the numbers before drawing any conclusions.

The primary cause of the slowdown is Donald Trump’s comprehensive tariff policies. Companies accelerated imports before the new trade measures took effect to brace for rising costs. This amounted to stockpiling. As a result, imports surged by 41% on an annualized basis.

In GDP calculations, imports are subtracted from the total output. So even if the economy hasn't actually stagnated, it may appear weak on paper.

When domestic demand indicators like consumer spending and private investment are considered, growth appears to be around 3%. From this perspective, the core dynamics of the economy still seem strong.

The Bureau of Economic Analysis (BEA) highlighted companies’ stockpiling behavior in its report. Without this temporary inventory buildup, GDP would have contracted by 2.5%, significantly more than the reported annualized 0.3%.

Meanwhile, the U.S. trade deficit hit a record $162 billion in March. This too was due to early import measures taken in anticipation of the tariffs. This trend may reverse in the second quarter, as many companies’ warehouses are now full. In that case, firms may reduce imports, and consumers could continue consuming previously imported goods. Such a development might produce a rebound effect on GDP.

Still, broader concerns persist. The root cause is the ongoing high uncertainty surrounding global trade.

Recently, the IMF lowered its U.S. growth forecast for 2025 from 2.7% to 1.8%. Private sector forecasts suggest that growth could come to a standstill. The Federal Reserve is also not expected to cut interest rates before the second half of the year.

Despite the uncertainty, U.S. stock markets have experienced a notable rebound. Losses following Trump’s “Liberation Day” tariff announcement a month ago have been largely recovered.

The reason for the market recovery is the April employment data, which exceeded expectations. The Bureau of Labor Statistics reported that 177,000 new jobs were added to the economy in April, beating Bloomberg’s forecast of 135,000. However, this still marks a decline compared to March. The unemployment rate stands at 4.2%.

Following Trump’s tariff announcement, Wall Street’s benchmark index had dropped as much as 15%. Global financial markets experienced significant volatility. However, in recent days, a statement by the Chinese Ministry of Commerce indicating that China remains open to trade negotiations with the U.S. helped calm the markets.

Another important development related to China was the result of a monthly survey of Chinese manufacturers published on April 30. According to the survey, China’s new export orders fell to their weakest level since the end of 2022. This signals vulnerability not only for China but also for global trade. Considering China’s role in the global economy, the significance of this data becomes even more striking.

China is the largest trading partner of over 100 countries. It is also tightly integrated into Asia’s supply chains. In 2022, over 19% of Japan’s intermediate goods imports came from China. The figure was more than one-third for South Korea and over 38% for Vietnam. In this context, any slowdown in China whether driven by production or foreign demand has the potential to affect not only China but the entire region and global production systems.

Although there are alternative explanations behind the U.S. GDP data that do not necessarily point to a dire outlook, the high uncertainty surrounding the data casts considerable doubt on the future of the economic outlook.

In light of all these developments, another critical date that could further heighten trade-related uncertainty is approaching. Perhaps the trajectory of the data also depends on this pivotal date. The 90-day tariff deferral period imposed by the Trump administration will expire on July 9. After this period, a new wave of tariffs or the permanent enforcement of existing ones may come into effect. We will watch closely.

On the domestic front, negative developments are unfolding for the American public. Trump proposes a 22.6% cut in non-defense discretionary spending in the federal budget. This would reduce such spending to its lowest level since 2017. Meanwhile, the defense budget is set to increase by 13%, and the homeland security budget by 65%. These figures reflect how escalating international tensions are influencing resource allocation.

The new budget includes billions of dollars in cuts to foreign aid, healthcare, education, and environmental protection. Grants for renewable energy and electric vehicles have been targeted by the administration as part of a “globalist climate agenda.” These are worrying developments from both a social benefit and climate crisis perspective.

Trump also wants to reduce the budget for the Department of Education, consistent with his previous statements calling for its elimination. Agencies such as the National Institutes of Health (NIH), the Federal Emergency Management Agency (FEMA), and the Internal Revenue Service (IRS) are also in the crosshairs. Trump argues these institutions have been “weaponized” and therefore should be downsized.

In the Senate, Democratic Majority Leader Chuck Schumer sharply criticized the budget. “While Trump slashes healthcare, cuts education, and eliminates programs families depend on, he’s giving tax breaks to billionaires and big corporations,” he said. He added, “This is not just fiscally irresponsible; it is a betrayal of working people, a betrayal coming from a morally bankrupt president.” American domestic politics is experiencing intense polarization under Trump.

In conclusion, the economic slowdown in the first quarter may largely stem from temporary factors. However, when the broader policy framework is considered, serious concerns emerge. The market recovery looks fragile. Trade tensions, regional weaknesses, austerity budgets, and growing inequality will challenge the resilience of the U.S. economy in the coming months, and their global repercussions will continue to be marked by uncertainty.