news
analysis
A
Flashing Economic Warning and a Sharp Political Jolt
The report
that the economy contracted in the first quarter underscored how much President
Trump has at risk as he pursues an aggressive trade war.
David E.
Sanger
By David E.
Sanger
David E.
Sanger has covered six American presidencies and served as both a business and
national security correspondent in Asia during a previous era of trade wars
with the United States. He reported from Washington.
https://www.nytimes.com/2025/04/30/us/politics/trump-first-quarter-economic-reports.html
April 30,
2025
President
Trump took office 101 days ago after a campaign in which voters bought his
argument that he could skillfully manage the economy and that his policy
prescriptions could both bolster growth and eradicate inflation.
So the news
on Wednesday that the nation’s gross domestic product had contracted in the
first three months of the year was a sharp political jolt as well as a blinking
economic warning.
It came at
the end of a quarter in which stock prices were down sharply, Wall Street’s
worst performance at the start of a new presidential term since Gerald R. Ford
tried to steer the country out of scandal and inflation 51 years ago. And it
only added to the widespread uncertainty among businesses and consumers about
what the rest of the year might hold as Mr. Trump pursues a trade war that is
already choking off supply chains and threatening to push prices up and lead to
shortages of critical components and products on shelves.
It is too
soon to predict where the American economy is headed for the rest of the year,
and Mr. Trump remains insistent that he will produce a flurry of trade deals
that will bring manufacturing back to the United States and usher in a new age
of prosperity.
But the
first-quarter figures brought the political risks for him into focus. For Mr.
Trump, what is at stake is a question of fundamental competence on an issue
that he has always used to define himself.
If the
report proves to be a harbinger of an extended slowdown or recession, the
situation could become the economic analog of President Joseph R. Biden Jr.’s
fumbled withdrawal from Afghanistan four years ago this summer. Mr. Biden’s job
approval ratings never recovered from that early debacle. Nothing he did later
— not the millions of jobs created, not the big legislative victories, not the
rapid response to Russia’s invasion of Ukraine — could restore the sense among
voters that he could be trusted to carry out the job with the skill they
assumed he brought to it.
Mr. Trump
stood in the Rose Garden on April 2, what he called “liberation day,” and
rolled out a broad and punitive set of tariffs on trading partners. He has
promised that other countries will come begging for a deal to roll back those
levies and other tariffs he has imposed.
A
substantial number of Americans appear skeptical. In a New York Times/Siena
College poll last week, 55 percent disapproved of Mr. Trump’s handling of the
economy, with 43 percent approving. About half of voters disapproved of Mr.
Trump’s handling of trade.
Some of Mr.
Trump’s economic advisers now recognize that the timing and execution of his
tariff announcements could prove to be colossal mistakes, even if they applaud
the underlying strategy. That is why, every few days, they are announcing new
exceptions, most recently to relieve the pain for American carmakers.
“On April 2,
standing in arguably the most powerful place in the world, President Trump
thought he was projecting American strength,” said Matthew P. Goodman, who runs
the geoeconomics center at the Council on Foreign Relations and served under
Presidents George W. Bush and Barack Obama. “But he discovered that trade is
complicated, that you need to be more surgical, and he has had to tack back
from that ever since.”
Mr. Trump,
the billionaire real estate investor, has acknowledged that his strategy will
bring some temporary pain to Americans, but seemed to argue on Wednesday that
it would hardly be noticed by ordinary Americans, at least at toy stores.
“Well, maybe
the children will have two dolls instead of 30 dolls, you know?” he said. “And
maybe the two dolls will cost a couple of bucks more than they would normally.”
Whatever the
cost of a Barbie, Mr. Trump is facing a fundamental timing problem. It will
take years for the huge investments he predicts will flow into the United
States to unfold and bring about the industrial renaissance he has promised.
Building the most cutting-edge semiconductor fabrication plant, for example,
can easily take five years.
“Those
chips, those beautiful chips, make those suckers in the U.S.A.,” Mr. Trump said
in the White House on Wednesday as he addressed executives and called out how
much each had committed to spending on new facilities in the country.
It is too
early to know how quickly those investments will take off, including Apple’s
commitment, hailed again by Mr. Trump on Wednesday, to invest $500 billion,
including a chunk of its manufacturing capability, in the United States over
the next four years.
But the
economic pain of the tariffs could start within months, with upward pressure on
prices and shortages of both industrial and consumer products made abroad.
Much of Mr.
Trump’s political problem lies in that disconnect. For many of the products
Americans will be paying more for — especially Chinese-made products — there is
no American alternative. And for many more, producing them in the United States
may make no sense.
For all his
downplaying of economic concerns, Mr. Trump is clearly sensitive to the
prospect of being blamed for rising prices. When reports began to circulate
this week that an Amazon subsidiary was thinking about posting the tariffs
customers would be paying on every product, Mr. Trump called Jeff Bezos,
Amazon’s founder, to complain.
Giving
consumers a breakdown of how much tariffs are costing them, the White House
said, would be a “hostile and political act.” Amazon quickly said it had never
fully approved the plan, and that it would not go into effect.
But many
business leaders are rattled by the environment, saying they have no way of
projecting their earnings for the second quarter because the economic
environment has never been more opaque.
“I keep
telling them not to underestimate Donald Trump,” said David McIntosh, the
president of the Club for Growth, the anti-tax advocacy group whose members
almost unanimously cheered Mr. Trump’s return to office.
Mr. McIntosh
said he is optimistic that Mr. Trump will be successful at negotiating down
tariffs with Western-style democracies that rank among America’s biggest
trading partners. “I run into a lot of executives who ask, ‘OK, how does Donald
Trump do this?’ And my answer is to wrap their minds around ‘The Art of the
Deal,’ that he is negotiator in chief.”
The way to
calm the markets now, he said, is to “get Congress to get the tax cut bill
done,” and to extend the tax cuts Mr. Trump got enacted in his first term.
Mr. McIntosh
is pressing to expand that tax cut, specifically by permitting businesses to
write off the cost of building new production facilities immediately, rather
than depreciate those costs over decades.
Mr. Trump
may score some early wins. Treasury Secretary Scott Bessent said on Tuesday
that “we are very close on India.” He added that South Korea was “sending its
A-team” to negotiate and that a deal was also possible soon with Japan. Mr.
Trump said on Wednesday that Canada’s new prime minister, Mark Carney, had
called him the day before and said “‘Let’s make a deal.’”
Perhaps so,
but Mr. Carney also had this to say on Tuesday after winning the Canadian
election: “Our old relationship with the United States, a relationship based on
steadily increasing integration, is over. The system of open global trade
anchored by the United States, a system that Canada has relied on since the
Second World War, a system that, while not perfect, has helped deliver
prosperity for a country for decades, is over.”
Mr. Carney
has vowed to reduce Canada’s dependence on its huge neighbor, no easy
assignment since bilateral trade amounts to about a fifth of the country’s
economy. China, the most powerful player in Mr. Trump’s trade wars, has been
pursuing a similar strategy. And its leader, Xi Jinping, has every incentive to
make the next few months as politically painful for Mr. Trump as possible.
Mr. Xi has
largely maintained radio silence since Mr. Trump announced an escalating set of
tariffs on Chinese goods, settling at 145 percent after several angry moves and
countermoves with Beijing. That rate is so high that it essentially freezes
trade; already there are reports of freighters loaded with goods that are being
turned around, so that importers do not have to pay those tariffs.
Mr. Trump’s
bet is that Mr. Xi will blink first because the pain for the Chinese economy
will be so great that he will have to strike an accommodation that will, over
time, allow the United States to get back to something approaching normal. Mr.
Xi is betting the opposite: that Mr. Trump has overreached, and can’t withstand
bad G.D.P. numbers, rising inflation or plummeting polls.
Only one of
them is right.
David E.
Sanger covers the Trump administration and a range of national security issues.
He has been a Times journalist for more than four decades and has written four
books on foreign policy and national security challenges.
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