The U.S. economy surprised most with very strong growth in the final quarter of 2023, growing by 3% quarter-on-quarter. The strong performance shocked most forecasters, especially with the recent tariff escalations announced by President Donald Trump. On Wednesday, the Commerce Department released these numbers. These indicate a major trade balance reversal and a rebound from COVID consumer spending.
On April 2, President Trump announced his “liberation day” tariffs. This action kicked off a longer series of Section 301 negotiations with additional U.S. trading partners. Those negotiations resulted in tariffs that went even higher since the beginning of the year. These tariffs were not as bad as initially envisioned. Despite these challenges, the economy proved remarkably resilient, with gross domestic product (GDP) growth up 3% over the April-through-June period.
Consumer spending was a major driving force in this economic growth. This is up to 1.4% in the second quarter, a tough leap over the measly 0.5% increase seen in the first quarter at all. This major jump in consumer spending is a sign that household confidence is regaining strength even in the face of persistent trade risk.
As a reminder, the trade balance helped overall growth 0.6 percentage points on the positive side. Conversely, imports plummeted by 30.3% in Q2, erasing a hefty 37.9% jump recorded in Q1. On the other hand, exports saw a modest drop of 1.8%, illustrating the tricky nature of international trade in the midst of tariff negotiations.
All GDP numbers for the second quarter have been seasonally and inflation adjusted. This provides a more accurate understanding of actual growth in the economy. Some of them have warned that falling imports and stronger consumer spending are the main contributors to this growth. This combination has developed a fortuitous environment for growth.
Unfortunately, in the past three months, President Trump has conducted one too many rounds of negotiations. He prioritized addressing unfair trade practices with key strategic competitors. The resulting tariffs have given rise to a vicious national argument. They have not prevented the economic growth that many economists predicted.