Boomerangs turned around politics dictatorial promoted by the president of the USADonald Trump, in trade and growth before even entering, according to data announced in recent days.
The biggest impact occurred in the US, where GDP decreased by 0.3%in the first quarter, for the first time since 2022, when the US economy came out of the pandemic crisis. GDP decline caused a sensation as growth in the US was particularly strong in the past two years and stood at 2.3% in the fourth quarter of 2020, while analysts expected a slowdown but in no way a negative rate. The negative surprise is mainly due to the explosive increase in US product imports by 51%, with businesses rushing to boost their stocks before imposing duties to avoid increases in prices that they would inevitably cause.
The negative impact of imports to GDP was in the order of five percentage points, an unprecedented size for the US economy, at least for the last decades.
It should be noted that the debate on duties began shortly after January 20, when Trump took over the presidency, but the first measures involving imports from Canada, Mexico and China were imposed in late February and early March, while the sweeping duties were announced by the US duties.
Trump then reduced the duties to 10%, suspending 90 days to the implementation of higher rates announced for a number of countries – including European Union (20%) – to allow new trade agreements through negotiations. Since March, sector duties have been applied – in aluminum and steel (25%) and then cars, which relate to imports from all countries.
Negatively, but to a lesser extent, US GDP also contributed to public spending by 5.1% in total (and 1.4% at federal level), as part of the restriction of huge deficit and debt deficit measures, with the spearhead of the Governmental Efficiency Service (Doge).
Consumption continued to rise but at a slower pace than previous quarters (1.8% versus 4% in the previous quarter), while fixed capital investments increased by 7.8%, but mainly due to the increase in capital equipment (22.5%) which also reflects the duties.
Although the overall picture of GDP is not such that it shows the entry into a recession, at least at this stage, there is no doubt that the US economy has been negatively affected by Trump’s commercial policy and the uncertainty it causes to consumers and businesses. Some analysts believe that it will move towards the recession – technically defined by two consecutive quarters of GDP reduction – in the second half of 2025.
The rapid stock of goods in the US has led, on the other hand, to accelerate exports from China and other key commercial partners, including the countries of the European Union. Manufacturing activity in China had increased in the first quarter as orders from America were high, but after the imposition of duties, which are now moving to prohibitive levels (145%), orders declined significantly, according to research data in Chinese manufacturing companies for April.
This increases the pressure for the government to escalate in Beijing to the support measures of the economy, although it is doubtful whether they will be enough to maintain growth rates of 5%, as in recent years. Capital Economics economist noted that fiscal support is unlikely to fully offset the reduction in external demand and provide for growth to 3.5% this year.
Eurozone GDP figures in the first quarter were better than expected, as it increased 0.4% against 0.2% in the fourth quarter of 2024 and 1.2% on a yearly basis. The Eurostat analysis of the sizes that have contributed to the final result of GDP will take place in early June, but it is very likely that this was significantly affected by an increase in exports that covered the US storage needs.
In any case, the negative impact on US duties is expected to be seen in the second quarter data, as European exporters now have to deal with 10% tariffs for most products and 25% for cars, aluminum and steel. The negative demand shocks, therefore, will also hurt the eurozone along with the uncertainty of consumers and businesses.
Source: RES – EIA