US economy returns to growth in second quarter as Trump’s tariffs take hold

WASHINGTON - The US economy returned to growth in the second quarter, government data showed on July 30, as analysts warned of distortions due to shifting trade flows over President Donald Trump’s tariffs.

The world’s biggest economy expanded by an annual rate of 3 per cent in the April to June period, beating analysts’ expectations and reversing a 0.5 per cent decline in the first three months of 2025, according to the Department of Commerce.

This swiftly prompted Mr Trump to

ramp up pressure for an interest rate cut,

saying on social media that Federal Reserve Chair Jerome Powell “must now lower the rate”, using his critical nickname for the central bank chief in doing so.

The US central bank is due to announce its latest interest rate decision the afternoon of July 30.

A consensus forecast by Briefing.com had expected a 2.5 per cent gross domestic product (GDP) growth rate.

At the start of 2025, businesses rushed to stock up on products to avoid the worst of Mr Trump’s threatened tariff hikes – but the build-up is now unwinding.

The growth in the second quarter reflects a decrease in imports into the US – likely as a result of the tariffs – as well as an increase in consumer spending, according to the Commerce Department’s report.

The import surge in the first quarter of 2025 led to the largest drag on GDP growth from net exports on record, analysts at Goldman Sachs noted recently.

Analysts widely expected a bounce back as imports cooled but said this might not be sustainable.

They warned that Mr Trump’s incoming wave of tariff hikes could cause an uptick in inflation, which would in turn erode households’ spending power. This stands to weigh on consumption patterns.

“It’s very much distorted by the trade flows and inventory,” said Nationwide chief economist Kathy Bostjancic of the second quarter growth.

But the acceleration is not sustainable, she told AFP.

Since returning to the US presidency, Mr Trump has threatened and rolled out wave after wave of fresh duties.

These included a 10 per cent levy on almost all US partners, higher duties on steel, aluminum and auto imports, as well as separate actions against Canada and Mexico over illegal immigration and illicit fentanyl flows.

In April 2025, the Trump administration separately took aim at the world’s number two economy, China, as Beijing pushed back on US tariffs.

Both countries ended up imposing tit-for-tat tariffs on each other’s products, reaching triple-digit levels and bringing many trade flows to a halt before Washington and Beijing reached a temporary agreement to lower duties.

After two days of talks in the Swedish capital of Stockholm this week, negotiators signaled there could be an extension of the truce – although the final call depends on Mr Trump.

Clear deceleration

Ms Bostjancic expects that underlying activity driving US growth will be moderating, although not collapsing.

“The US economy continues to navigate a complex set of crosscurrents, obscuring a clear reading of its underlying momentum,” said EY chief economist Gregory Daco in a note ahead of the GDP report.

But he added that one trend is evident, which is that “economic activity is decelerating even as inflationary pressures are reemerging”.

“Tariff-induced cost pressures, persistent policy uncertainty, severely curtailed immigration, and elevated interest rates are collectively dampening employment, business investment and household consumption,” Mr Daco said.

Analysts are closely eyeing the impact of Mr Trump’s tariffs on inflation, with economists warning that the duties could fuel price increases. They expect to learn more from data in the summer months.

All of this could impact consumer spending – a key economic driver.

“The trend in GDP growth is best analysed by considering the first and second quarters together,” said Mr Samuel Tombs, chief US economist at Pantheon Macroeconomics.

He said in an earlier note that the US economy would probably “lose more momentum” in the third quarter, when consumer prices for imported goods likely will rise sharply. AFP