Don’t blame imports for the fall in America’s GDP

It is a tenet of Donald Trump’s economic philosophy that trade deficits are bad for growth. It can also seem like a cornerstone of GDP releases. On April 30th the Bureau of Economic Analysis said that America’s economy shrank at an annual pace of 0.3% in the first quarter of 2025, the first such decline in three years. This, the bureau said, “primarily reflected an increase in imports, which are a subtraction in the calculation of GDP”. Mr Trump, apparently embarrassed by the contraction, blamed a “Biden overhang”. But though it was a bad day for him, it was a good one for Trumponomics, as headlines spread the message that imports are an economic drag.

Imports surged as firms and consumers scrambled to bring goods into the country before the worst of Mr Trump’s tariffs took effect. They rose by an astonishing 41% at an annualised rate. Yet that alone is not enough to explain the drop in GDP.

The confusion results from how GDP is calculated. It is a measure of domestic production, but it is usually inferred by adding up total spending: on consumption, investment, government and exports; minus imports. This works because everything that is sold is produced. Imports are subtracted not because they hurt output, but because spending on them has been counted in the other components, yet they are produced abroad. To arrive at a measure of domestic output, they must be stripped out.

For this reason, the bringing forward of imports to front-run tariffs should not affect GDP. If firms stockpile imports to build up their inventories, that counts as investment; if consumers hurriedly buy dishwashers or jeans before tariffs come into effect that counts as consumption. The hoarding of foreign goods therefore enters as both a positive and a negative in the calculation of GDP, with approximately no overall effect. And as imports rose inventories did indeed surge, boosting growth by 2.25 percentage points, the most since 2021.

Why, then, did GDP fall? It may have been because of measurement problems. Inventories and consumption are harder to keep track of than imports, say economists at Goldman Sachs, a bank. The Census Bureau tracks trade as it flows through customs; it estimates consumption and inventories using less precise sources, including voluntary surveys. Mr Trump’s “Liberation Day” tariffs loomed right at the end of the quarter. Perhaps a last minute rush to beat the deadline was picked up at the border but nowhere else. If so, then the GDP figure is likely eventually to be revised up.

Another possibility is that Americans were so keen to beat the tariffs that they cut their spending on home-made stuff to pay for more foreign goods. Such a shift in the composition of spending towards imports can harm GDP in the short term, because factories and workers that are idled are not immediately put to an alternative use. Yet if this is why GDP fell, then, all else equal, there will be catch-up growth later, when Americans redirect their spending homeward. You might call it an overhang. Still, you should expect Mr Trump to try to take the credit—unless his tariffs crash the economy in the meantime. ■