The US economy unexpectedly shrank by 0.3 percent annually in the first quarter. Growth in the previous quarter was 2.4 percent. President Trump did not delay in showing the expected reaction: Democrats are responsible for this contraction because he took office on January 20. Could he be right?

Let me summarize the detailed figures and assessments made by the Bureau of Economic Analysis (BEA) of the US Department of Commerce regarding the first quarter economic growth and try to understand who is responsible for this contraction, then we will take a look at the course of the US economy.

We know that Trump dropped the tariff bomb on April 2; 2 days after the end of the first quarter. However, we also know that Trump, both during his election campaign and after winning the elections and settling in the White House, tirelessly repeated that the most important tool of his Mega Idea of ​​“making America great again” was to eliminate the foreign trade deficit and that he would increase customs duties as much as necessary for this purpose.

What would you do if you were the manager of a company that relies on imported inputs for production or markets imported goods? Even if you are a big Trump fan, you would stockpile goods as much as your financial situation allows before customs duties increase, seeing that the storm is approaching.

The numbers say exactly that, and even a little more. There is a serious increase in investments, but BEA emphasizes that this is largely due to the increase in stocks. In fact, the non-agricultural private sector stock increase is 2.3 percent. I looked at the stock change figures that have fluctuated positively and negatively since 2022 (after the pandemic): The biggest increase was 1.3 percent in the 4th quarter of 2022. The stock increase is largely due to imported goods.

Import growth has jumped to 5 percent. BEA states that this increase is due to consumer and capital goods, excluding food and automotive. Exports, on the other hand, have increased very little. Therefore, net exports have pulled growth down by nearly 5 points. The US economy has shrunk by 0.3 percent in the first three months, as the slowdown in private consumption and relatively high investment growth, including stocks, have not been enough to compensate for the blow dealt by imports.

I think it is clear enough who is responsible for the shrinkage. If the shrinkage repeats in the second quarter, the US economy will enter a recession. How likely is this? In fact, the uncertainties created by Trump's unpredictable zigzags are so great that it is not easy to make a reasonable prediction. Let's take a look at what could happen together. The first critical question in terms of economic growth is whether imports for stock purposes will continue to increase. Trump has suspended extra customs tariffs with countries other than China for 90 days.

He is supposedly negotiating. But it is not easy to guess what he is negotiating. It is not possible to return to the period before April 2. Presumably, the trading partner will want to impose at least differentiated and generally lower tariffs according to goods without reciprocating. Will he be successful? We do not know. He also wants to negotiate with China, but will the dreaded customs duties be suspended? Or will the negotiations take place in a race against time under the balance of terror where the mutual trade of the two countries is heading towards zero? We don't know that either.

In this case, the following question does not come to mind: How will the foreign trade deficits be closed? Well, that's Trump's problem. After all, if the negotiations are seen to develop in this direction, net exports will not negatively affect growth in the second quarter. Otherwise, a new wave of imports will be inevitable.

The second critical question in terms of growth is how private consumption, which has by far the largest share in GDP, will behave. The increase in the first quarter was 1.2 percent. It is very low compared to previous quarters. In fact, service expenditures saved the situation: The increase was 1.1 percent. The increase in goods was 0.1 percent. There was a decrease of 0.3 percent in durable consumer goods. This picture shows that households are slamming on the brakes in the face of uncertainties. If uncertainties continue, it is certain that private consumption will not make a significant contribution to growth.

The third critical question is how the Fed will behave in an environment of increasing inflation. Trump is putting great pressure on interest rates. We will witness a fierce arm wrestling match between the Fed and the White House in the coming weeks. This clash will increase, not decrease, uncertainty.