The signs of strain in the US economy have become increasingly evident as the Organisation for Economic Co-operation and Development (OECD) recently downgraded its growth forecast for 2025 to 1.6 percent, down from its earlier prediction of 2.2 percent earlier this year.
This downgrade correlates with revised data from the US Department of Commerce, indicating that the economy contracted at an annualized rate of 0.2 percent in the first quarter of 2025—the first time a contraction has been recorded since 2022.
Experts point to the US administration’s unpredictable tariff policies as a significant factor in the economic slowdown, noting how these policies have escalated costs and diminished the country’s economic outlook.
Alvaro Pereira, OECD’s chief economist, expressed concern in a commentary, stating, “We have seen a significant increase in trade barriers as well as in economic and trade policy uncertainty.”
Since April, the US administration has intensified tariffs impacting its major trade partners, resulting in widespread disruption to global supply chains.
According to economists, tariffs, which are taxes levied on imported goods, ultimately add costs to US businesses, leading to higher prices for consumers.
Zhang Xinyu, an associate professor of industrial economics at Liaoning University, noted, “It increases household financial burdens and decreases corporate profits.”
She further explained, “Tariffs raise costs, reduce consumer purchasing power, and limit business investment, thus slowing economic growth.”
Zhang highlighted that frequent shifts in policy, including an announced 90-day pause on some tariffs, have heightened uncertainty and weakened overall confidence in the economy.
Ke Jing, an associate researcher at the Shanghai Academy of Social Sciences, added that the ongoing tariff chaos could severely impact the economy.
“If the pause ends without solutions, more countries and regions are likely to respond with countermeasures, further amplifying negative effects on the US economy,” she stated.
As a result, there is an expectation of increased economic integration in other regions, as countries may seek to distance themselves from the US amid rising costs and uncertainties.
In a recent report, the US Department of Commerce’s Bureau of Economic Analysis revised the first quarter’s economic data, indicating that the contraction was less severe than initially estimated, with the figure adjusted from 0.3 percent to 0.2 percent.
This revision was largely attributed to businesses stockpiling imports to circumvent anticipated tariffs.
Despite the slight upward adjustment, corporate profits experienced a sharp decline of $118.1 billion in the last quarter, a stark contrast to the $204.7 billion increase recorded in the prior quarter.
Consumer spending, which constitutes nearly 70 percent of US GDP, also showed signs of weakness, slowing to just 1.2 percent growth in the first quarter compared to 4 percent in the previous quarter.
Ke commented, “Weak performance in consumer spending and declining corporate profits indicate growing pressure on the demand side.”
She added, “Some US policies have indeed undermined the fundamentals of the economy.”
Furthermore, an imbalance in trade significantly impacted GDP, as imports outperformed exports, growing at 42.6 percent against the prior estimate of 41.3 percent.
Zhang confirmed that trade deficits adversely affect GDP growth, noting that the anticipation of tariffs led companies to import large quantities of goods, thereby inflating import numbers and negatively influencing GDP figures.
In yet another recent development, the US administration has decided to raise tariffs on steel and aluminum imports from 25 percent to 50 percent, effective immediately.
Zhang emphasized, “Constant policy changes have dampened expectations, and the tariffs are causing more harm than good for the US.”
Mehmood Ul Hassan Khan, executive director of the Center for South Asia and International Studies, remarked that the US economy is mired in significant debt, raising concerns about future budgetary and fiscal deficits.
He stated, “The figures serve as a wake-up call for US policymakers as they indicate a shrinking economy, slowing industries, high inflation, and a drift toward recession due to the US’ ongoing reckless trade and tariffs war with the world.”
Khan warned that further suffering could be expected for both the US and the global economy if tariff issues remain unresolved.
Currently, the US national debt has exceeded $36 trillion, and with prevailing high interest rates, Ke noted that investors are favoring short-term US government bills over long-term bonds.
This trend will likely push up long-term yields, further straining federal finances, causing ongoing concerns regarding the economy’s trajectory.
Ke concluded, “While it is uncertain if the US economy is already in a recession, the existing trends suggest that it is facing serious challenges, as tariffs, debt, and weak demand converge to raise alarms.”
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