The U.S. economy has begun to show cracks of late. Despite macroeconomic trends, in the first quarter of this year gross domestic product (GDP) fell to an annualized rate of -0.3%. This drop follows the implementation of President Donald Trump’s widely-protested, job-sucking tariff plan that has had a profound negative effect on business investment and economic activity. In the first quarter, businesses raced to bring in products before new, higher tariffs were imposed. This rush was enough to result in a remarkable 51% surge in goods imports, the fastest pace since 2020.
That steep decline in GDP is not the whole story, though. Perhaps more famously, businesses rushed to ramp up inventories before the imposition of tariffs that went into effect on April 2—a day Trump once named “Liberation Day.” This common preemptive behavior on the part of businesses added to an artifice in the inflation of economic activity. Consumer spending increased by 1.8%, and business investment jumped by 22% over that same time period. As experts have been warning, these figures may not actually paint an accurate picture of the economy’s underlying positive trajectory.
White House senior trade adviser Peter Navarro downplayed the negative implications of the GDP report, describing it as “the best negative print I have ever seen in my life.” As economists wryly note, stockpiling can be a misleading economic boost. Ryan Young, a senior economist at the Competitive Enterprise Institute, remarked, “Stockpiling is making things look better than they actually are.”
The idea that today’s economic expansion could be a mirage should be ringing alarm bells for all of us looking toward the future. Young elaborated, “And the flip side of that is that it’s going to slow down once that midnight rush is over.” He had previously warned that the second-quarter GDP numbers would be “brutal.” The impact of Trump’s tariffs, which are among the highest in the developed world, is setting in.
Paired with a surprising contraction of the U.S. economy in the first quarter, expectations for moderate growth have dimmed. This is a reflection of the pattern from 2022, when the economy quickly recovered after a shallow, brief downturn. According to Brian Rose, senior U.S. economist at UBS, this volatility reflects broader uncertainties tied to international trade dynamics and domestic policies.
Federal Reserve economist Ernie Tedeschi, now director of the Budget Lab at Yale University, expects a worse-than-hoped-for second-quarter GDP report. He suggests that companies’ current stockpiling efforts are creating what he describes as “an artificial pull-forward in demand,” warning that “what often lies beyond these pull-forward effects is a cliff.” Amidst the rearguard economic efforts, growing inventories and a sharp drop-off in spending would raise some dangerous cross-currents for a soft landing.
Young emphasized the dual nature of stockpiling effects: “People are stockpiling now. That’s helping the economy now — and then they’re going to spend even less.” This cyclical pattern may bring especially acute economic pain if consumer demand collapses following the first wave of new imports.