Economy shrinks following Trump tariffs: CEI analysis

America’s GDP shrank during the first quarter of 2025 following President Trump’s spate of trade tariffs imposed on various countries in his first 100 days in office, falling at an annualized rate of 0.3 percent from January through April. CEI Senior Economist Ryan Young expects the second quarter of this year to be worse:

That didn’t take long. A healthy economy started shrinking even before President Trump’s Rose Garden tariffs were announced. The US is halfway to a self-imposed recession, and tariffs are to blame.

Up to now, most recession indicators were at roughly 50-50, which proved to be an understatement. We will not know for sure about a recession for at least another three months. But if the economy was already shrinking in the first quarter of 2025, then the second quarter could be brutal.

One reason forecasters were still expecting first-quarter growth is because they expected people to buy up goods like cars and electronics before tariff increases took effect. This temporary boost would be offset by a post-tariff slowdown in demand. But even with pre-tariff hoarding, the economy still shrank. This does not bode well.

Also boding poorly is that the sheer size of Trump’s April 2 tariffs was a surprise. Markets already priced in anticipated tariff damage during the first quarter; but few people expected the largest tariffs since the Great Depression’s Smoot-Hawley tariffs, the largest overall tax increase in more than 30 years, and retaliatory tariffs from around the world.

Shipping traffic from Asia is already slowing down, and UPS and other shippers are already announcing layoffs. Shortages will in turn affect manufacturing, retail, and other industries, and could last for as long as Trump’s tariffs do. Supply chains take years to reroute, and companies were in some cases given eight hours’ notice.

Some relief is coming but not enough. Trump has begun walking back some of his tariffs but not all the way. It is as though someone takes $100 from you, gives back $20, and calls it even. Tariffs are still far higher than they were before Trump took office, and they will remain that way until Congress and the courts stop him.