Trump Loses First Round of Trade War as US Economy Shrinks, China's Grows

In a week when President Donald Trump wanted headlines about wins, he got one about economic losses—while the rival he set out to weaken showed unexpected strength.

The U.S. economy contracted at an annual rate of 0.3 percent in the first quarter of 2025, marking the country’s first economic downturn in three years. The release of the weak GDP data coincided with a notable development abroad: China’s economy grew at a faster-than-expected annual rate of 5.4 percent.

Why It Matters

The report landed as Trump sought to highlight new corporate investments in the U.S. while spending the week celebrating his 100th day in office. On Wednesday, the government reported that the U.S. economy had shrunk.

Trump swept into office largely on the back of his economic messaging. As his polls numbers on the economy continue to dwindle, he could face headwinds as economic uncertainty grows and the 2026 midterms approach.

What To Know

Driving the U.S. decline was a surge in imports, as companies tried to front-run sweeping tariffs on autos, steel, aluminum, and goods from nearly every country.

Trump pointed the finger at former President Joe Biden as the stock market fell Wednesday morning in response to the gross domestic product report. “This is Biden’s Stock Market, not Trump’s,” he wrote in Truth Social.

The twin reports undercut the administration’s trade war messaging. Trump’s tariffs—designed to squeeze China and stimulate domestic manufacturing—have so far produced the opposite effect: weakening U.S. growth while China’s economy, at least for now, accelerates.

“Trump wanted to show strength this week. Instead, the numbers showed weakness,” said Joseph Foudy, professor at NYU’s Stern School of Business. “The U.S. economy is reacting to the disruption. China, for now, is getting a lift.”

That lift came in part from a final surge in exports to the U.S. before new tariffs took effect. According to CNBC, Chinese shipments to America rose more than 12 percent in March, helping drive Beijing’s quarterly growth.

Henry Gao, a professor at Singapore Management University, told Newsweek that tariffs tend to produce delayed effects, which helps explain China’s strong Q1 numbers. “Many Chinese firms accelerated shipments to the U.S. in anticipation of the new ‘Liberation Day’ tariffs,” he said. “This front-loading means the full impact of the tariffs has yet to materialize in U.S. import data or consumer prices.”

Trump has argued that the tariffs will force China to negotiate and ultimately deliver results, but that has yet to materialize.

On the contrary, the administration has shown signs of frustration as China remains unmoved by Washington’s pressure tactics. This week’s data from both countries point in a different direction—one that could raise doubts about who’s paying the higher price so far.

“This is a self-inflicted slowdown,” Foudy said. “Major business decisions are on hold. No one wants to expand or hire under this kind of unpredictability.”

“As existing stockpiles are depleted, cost pressures may surface more clearly in the coming months,” Gao said. “Elevated tariffs can have inflationary effects in the short to medium term, particularly for consumer goods.”

Todd Belt, director of the Graduate School of Political Management, told Newsweek that the tariff war opened a window for China to do exactly what Trump hoped to prevent: grow, export, and reposition itself globally.

“China has essentially called Trump’s bluff,” Belt said. “They’re pivoting faster than he anticipated. They’re not responding with the kind of economic pain he expected.”

Both Belt and Foudy said China is actively building new trade relationships to reduce reliance on the U.S. Chinese officials have spent the last few months deepening ties with Europe and discussing new routes through Southeast Asia, the Middle East, and Latin America. Meanwhile, U.S. allies like Mexico and Canada are upgrading infrastructure and expanding economic ties with China and the EU.

“If we push our allies too hard while we’re pressuring China, we risk isolating ourselves,” Foudy said. “That’s exactly what China wants.”

However, while he agrees that Beijing appears to be gaining ground in the short term, he emphasized that China won’t escape harm entirely. “I do believe the trade war will hurt China, just as it’s hurting the U.S.,” he said. “That said, it’s not clear how much economic pain the U.S. is willing to tolerate.”

“We always have to view Chinese economic data with some skepticism,” he added. “We should assume that any damage to China’s economy will unfold gradually over the next year—it won’t show up immediately.”

Gao anticipates the two sides will re-engage in negotiations by June, driven by mounting pressure to mitigate the slowdown. “Over time, trade diversion and supply chain restructuring can rebalance flows,” he said.

“If managed effectively, this structural reorientation could improve U.S. supply chain resilience and reduce dependency on China, potentially delivering a net positive for the U.S. economy in the long run.”

How Long Can Trump Blame Biden?

New presidents often get a break early on, as voters often blame economic problems on previous leaders. Former President Barack Obama wasn’t blamed for the 2009 stock market crash, and former President George W. Bush didn’t take the heat for the dot-com bubble that burst before he took office.

But inflation and high prices were central to Trump’s 2024 campaign and victory—and they remain top concerns for voters. If consumers begin to feel the full effects of the tariffs, it could become harder for Trump to deflect responsibility.

“The honeymoon period typically lasts three to four months,” Foudy said. “We’ll start seeing the impact in June, through rising consumer prices and product shortages. Then by July, it will start appearing in GDP and other economic indicators.”

Markets typically handle uncertainty better than the average American consumer—but only up to a point. Since Trump’s inauguration, the stock market has been volatile, reacting to a steady stream of shifting tariffs, federal layoffs, and spending freezes. The Economic Policy Uncertainty Index, which tracks instability in government decision-making, has surged over the past two months, reaching levels not seen since the peak of the pandemic.

“This is entirely the responsibility of the Trump administration,” said Belt. “They inherited a strong economy—low unemployment, falling inflation, and market optimism around deregulation and pro-growth policies.”

What People Are Saying

Trump on Truth Social on Wednesday: “This is Biden’s Stock Market, not Trump’s. I didn’t take over until January 20th. Tariffs will soon start kicking in, and companies are starting to move into the USA in record numbers. Our Country will boom, but we have to get rid of the Biden “Overhang.” This will take a while, has NOTHING TO DO WITH TARIFFS, only that he left us with bad numbers, but when the boom begins, it will be like no other. BE PATIENT!!!

Peter Navarro, Donald Trump’s chief trade adviser, told CNBC: “We had a 22 percent increase in domestic investment. That is off the charts. When you strip our inventories and the negative effects of the surge in imports because of the tariffs you have three percent growth, so we really like where we are at now.”

Representative Brendan Boyle, the top Democrat on House Budget Committee, on the GDP report: “Donald Trump has done something truly remarkable—in just 100 days, he’s taken a strong economy and driven it toward a recession. This GDP report ends the myth that he can be trusted on the economy”

What Happens Next

The Trump administration has softened its rhetoric on China in recent days amid rising pressure to secure a deal and growing fears of a recession.

Update: 5/1/25, 4:06 p.m. ET: This article has been updated to include new comments from Henry Gao, a professor at Singapore Management University.