The US economy contracted in the first quarter due to Trump’s measures

The world’s largest economy was booming until Donald Trump returned to the White House. The U.S. president’s erratic economic and trade policies have generated distrust and uncertainty, and the country is now facing the possibility of a recession after an early estimate showed a contraction in the first quarter of the year.

Gross domestic product (GDP) shrank at an 0.3% annual rate, according to data from the Bureau of Economic Analysis, part of the U.S. Department of Commerce, released Wednesday. This is an advance estimate, with two reviews to follow over the next two months. In the fourth quarter of 2024, the economy expanded at an annual rate of 2.4%. For the first time in several years, the U.S. economy has shown less strength than that of the eurozone, which saw quarter-on-quarter growth of 0.4% in the first three months of the year.

With his economic protectionism, Trump is intending to reduce the trade deficit, but what he has achieved so far is to cause it to skyrocket to record levels, as businesses and consumers accelerated their purchases from abroad in anticipation of new import duties. This has caused a trade gap of $464.5 billion in the first three months of the year, an unprecedented figure that weighs down on the GDP. When calculating economic activity, exports add up and imports subtract.

Furthermore, inflation expectations have soared, despite Trump’s efforts to conceal the impact of his tariff measures on prices. This, in turn, has damaged consumer confidence, the main driver of the U.S. economy.

Trump’s first term was the worst for employment in modern U.S. history, with the Covid-19 pandemic as the main reason. Unlike then, the stock market and economic crises triggered by the second Trump term is entirely self-inflicted. He has squandered his legacy in less than 100 days, not only with the trade war but also with the freeze on congressionally approved spending, the layoff of federal employees without guarantees, the crackdown on immigration and other measures.

Numerous companies are warning that they will miss their sales and profit forecasts as a result of the trade war and the macroeconomic uncertainty. Airlines are noticing that citizens are booking fewer leisure trips. Other consumer-oriented companies are also feeling the drumbeat of a recession. The stock market has had the worst first 100 days of any president in decades.

Trump, however, boasts about delivering tailor-made investments and claims, in his ignorance, that he knows more about interest rates than Federal Reserve Chairman Jerome Powell. Part of Trump’s attacks on Powell may be due to the fact that he was looking for a scapegoat to blame for the damage he himself has caused.

Trump’s measures have complicated the central bank’s work. The Federal Reserve’s dual goals are full employment and price stability. The trade war threatens to drive up prices and slow job creation. Powell acknowledged this month that the economy is “moving away” from both goals and indicated that he needs “more clarity” before resuming the rate cuts. Investors don’t initially expect him to budge at next week’s meeting, but they are betting on a cut in June.

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