Consumers were not frontline tariffs – and that's a good thing: Part I
The latest GDP report has been set in fire under recession chatter. Actual GDP was signed at an annual rate of 0.3% in the first quarter of 2025. This is the first decrease since 2022. The heading number had an economist and an expert Reach out for the panic button.
“A concern that the US economy is heading for a recession thanks to President Donald Trump's tariffs is growing in the wake of new data showing the US economy contracting in the first quarter.” It has been declared Sarah Hansen from Morning Star. “The contraction is seen as an early indication that Trump's taxation, which is already unsettling among investors, consumers and businesses, places emphasis on actual measures of economic activity. While the surge in imports may be a temporary phenomenon, there may be broader concerns that a more pronounced economy may be ahead.”
It certainly sounds ominous. Be careful of passive voice use. “A worry… is increasing,” Hansen writes. Everyone in particular “shrinks” – certainly not Legacy media journalists are terrified about Trump's economy– But only by the market, the consumer, or the omniscient narrator himself. You learn that “there are broader concerns” but not those who actually have those concerns. They're just there, you know, some of the jidgists.
But what actually happened wasn't usually like the collapse of consumer demand as a result of the recession. It was an import flood, Frontline tariffs promoted by companies– Distortion mechanically subtracted from GDP. And this front run, far from the indications of economic weakness, is best understood as a vote of trust in future sales.
On the other hand, the expected perpetrator Imports spike– Consumer panic purchases—Simply is not authentic. Consumers are not taking tariffs to the forefront. And that's good news too. If so, demand will move forward and be set to sagging in future accommodations. But that's not the case. This means that the runway ahead may be longer than expected.
Companies were behind the import surge
The GDP report makes clear where the distortion comes from. Actual product imports rose sharply at 50.9% per year. This is one of the steepest jumps in modern history. That alone was enough to push GDP into negative territory.net exports surprise 4.8% points from growth.
According to the Bank of America economic team, the contraction was not entirely offset by stock accumulation or final demand, but was driven by front-loading of tariff-related imports. From an accounting perspective, Imports are deducted from GDP– But in reality, much of what is imported ultimately counts in consumption or investment. If the timing of these flows becomes out of sync, it can have misleading consequences, as we did in Q1. Bofa also points out that preliminary estimates may be modest in stock accumulation. This means that some of the missing offsets may appear in the revision.
Truck and shipping containers in the Port of Los Angeles, Los Angeles, California on April 24, 2025 (Eric Sayer/Bloomberg via Getty Images)
It shows robust domestic growth, far from GDP, which indicates a collapse in demand. in fact, Final domestic sales—Excluding GDP trade and inventory – Running at a 2.3% rate, reflecting strong underlying momentum.
The composition of these imports checks what is going on. The Bureau of Economic Analysis pointed out A rapid increase in pharmaceuticals, medical supplies, and computer equipment– Naturally, the importer types compete to bring before the expected tariffs. These are not impulsive purchases by households. They are strategic purchases by wholesalers and large retailers, and they think they will continue to be in strong demand, but they are prepared at a higher cost.
Part II, which runs tomorrow, expands evidence that consumers were not behind the import surge, and that it is a bullish sign of the economy.
