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The latest economic report card on Donald Trump’s trade war is out, and it looks dour.
The US economy contracted by an annualised 0.3 per cent in the first quarter of 2025, according to data published yesterday by the Bureau of Economic Analysis. A surge in imports from companies stockpiling products before Trump’s tariffs hit had weighed on the figure, even as investment and consumer spending rose.
The contraction, the first since 2022, was worse than economists’ most recent forecasts, and came as the US trade deficit touched an all-time high, according to figures published by the Census Bureau on Tuesday.
The president was characteristically quick to shake off any blame. In a post on Truth Social, Trump insisted that the figures had “NOTHING TO DO WITH TARIFFS”. He pinned the contraction on Joe Biden and added: “When the boom begins, it will be like no other. BE PATIENT!!!”
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Economists said they anticipated a rebound in the second quarter as imports fall and stockpiles make their way on to store shelves. But they also warned that tariffs would begin to hit domestic demand.
Eswar Prasad, a professor at Cornell University, said that the strong consumer spending figures earlier this year were “a poignant reminder of what might have been a graceful soft landing until the sweeping tariffs threw the economy off course”.
Beyond GDP, Wall Street is eager for signals that the administration is making progress on new trade agreements in the 90-day window before Trump’s so-called “reciprocal tariffs” take effect.
“The market is hyper-focused on those early trade deals,” Goldman Sachs president John Waldron said in an interview with the Financial Times.
Former Treasury secretary Janet Yellen was more blunt. She told the Financial Times that the tariffs would have a “tremendously adverse” impact on the world’s largest economy.
I’m not yet ready to say that I’m forecasting a recession, but certainly the odds have gone way up
The latest headlines
What we’re hearing
Trump’s top economic adviser Stephen Miran struggled to soothe leading bond investors with a pitch about tariffs that people with direct knowledge of the meeting said was “incoherent”. [Free to read]
The chair of the Council of Economic Advisers met representatives from major investors at the White House’s Eisenhower Executive Office Building last Friday. Attendees included representatives of hedge funds Balyasny, Tudor and Citadel, as well as asset managers PGIM and BlackRock.
People familiar with the meeting told the Financial Times that Miran did little to assuage their fears about the recent tumult in financial markets. US government bonds sold off sharply after the president’s so-called “liberation day” tariff announcement on April 2, and Wall Street stocks have sunk about 7 per cent since the beginning of Trump 2.0.
Miran also stuck firm to the administration’s line that tariffs would hurt trading partners more than the US, according to meeting attendees. One participant said he seemed “out of his depth”.
“[Miran] got questions and that’s when it fell apart,” the person added. “When you’re with an audience that knows a lot, the talking points are taken apart pretty quickly.”
Miran wrote a widely read note in November outlining plans for aligning global markets around US interests, including by weakening the dollar. Since joining the administration, however, he has increasingly sought to distance himself from these ideas, said a person familiar with the matter.
“Administration officials maintain regular contact with business leaders and industry groups about our trade and economic policies,” the White House said in response to questions about the meeting. “The only interest guiding the administration and President Trump’s decision-making, however, is the best interest of the American people.”
Viewpoints
By failing to collect environmental data, the US is on track to become a “rogue state” for climate science, writes science commentator Anjana Ahuja.
Jason Furman, former chair of the White House Council of Economic Advisers, outlines his strategy for understanding economic data amid the “substantial turbulence” triggered by the administration’s new trade levies.
Trump is overplaying his hand in the global trade war and risks repeating the painful mistakes of Brexit, argues Chris Giles.
Katie Martin lays out the long-term costs facing the US if Trump’s policies further dent the dollar’s status as a load-bearing pillar of global finance.
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