Imports surge ahead of Trump tariffs, dragging GDP into first decline in three years.

The U.S. economy shrank at a 0.2% annual pace from January through March, the first drop in three years, as President Donald Trump’s trade wars disrupted business, the government said in a slight upgrade of its initial estimate.

First-quarter growth was brought down by a surge in imports as companies in the United States hurried to bring in foreign goods before the president imposed massive import taxes.

The January–March drop in gross domestic product — the nation’s output of goods and services — reversed a 2.4% gain in the fourth quarter of 2024. Imports grew at a 42.6% pace, the fastest since the third quarter of 2020, and shaved more than five percentage points off GDP growth. Consumer spending also slowed sharply.

Federal government spending fell at a 4.6% annual pace, the biggest drop in three years.

Trade deficits reduce GDP. But that’s mainly a matter of mathematics. GDP is supposed to count only what’s produced domestically. So imports — which the government counts as consumer spending in the GDP report when you buy, say, Costa Rican coffee — have to be subtracted out to keep them from artificially inflating domestic production.

The first-quarter import surge likely won’t be repeated in the April–June quarter and therefore shouldn’t weigh on GDP.

From January through March, business investment surged 24.4%. An increase in inventories — as businesses stocked up ahead of the tariffs — added more than 2.6 percentage points to first-quarter GDP growth.

A category within the GDP data that measures the economy’s underlying strength rose at a 2.5% annual rate from January through March, down from 2.9% in the fourth quarter of 2024 but still solid. This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending.