Last week, it became clear that the American economy had slightly declined in the first quarter of 2025. No surprise given the “100 days of chaos” (eg, FT, NPR). The Wall Street Journal gave a good explanation for the (annualized) 0.3% decline:
“The U.S. economy contracted in the first three months of 2025, as businesses rushed to stock up on imports ahead of tariffs and consumers eased their pace of spending.”
Source: WSJ, 30 April 2025, U.S. Economy Shrank in First Quarter as Imports Surged Ahead of Tariffs
The above WSJ explanation also implies that 2025 Q2 will be far worse than Q1. Probably, each quarter after 2025 Q1 will be (far) worse than its previous quarter. Obviously, the blame game will continue: “Trump says he’ll blame Biden again for 2nd quarter GDP after blaming him for Q1 drop” (CNBC).
My new diagram sheds some light on my expectations:
Inflation will decrease consumption as our budgets remain similar. American government spending is like consumption and/or export (eg, Ukraine military aid). Hence, cuts in government spending (eg, D.O.G.E.) will decrease the national economy. Lastly, any import (-) is another country’s export (+).
My diagram does not expect a sudden increase in investments (eg, technology) despite their announced increases. Why? Building factories will take many years given their complexity. Moreover, some “new” announcements were already announced in the Biden era (eg, Reuters).
To summarise the above in different words:
“But implementing extremely high tariffs overnight hurts many businesses; particularly small businesses because the tariff must be paid by the business when the imported goods arrive in the US. Small businesses that have for decades relied on a stable US system will have to adjust immediately and do not have the working capital to pay tariffs. Expect ships to sit offshore, orders to be canceled, and well-run generational retailers to file for bankruptcy.
[…] there is now a 90% chance of what can be called a Voluntary Trade Reset Recession (“VTRR”) “
Source: Apollo Academy, 19 april 2025. Similar other sources: CNBC, Forbes, Morningstar
I Need a Dollar (2010) by Aloe Blacc
artist, lyrics, video, Wiki-artist, Wiki-song
[Verse 1]
Bad times are coming and I reap what I done sowed (Hey, hey)
Well, let me tell you something, all that glitters ain’t gold (Hey, hey)
It’s been a long old trouble, long old troublesome road
And I’m looking for somebody come and help me carry this load
Note: all markings (bold, italic, underlining) by LO unless in quotes or stated otherwise.
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