US economy displays significant recovery in the second quarter
The US economy showed resilience in the second quarter of 2023, with the Gross Domestic Product (GDP) expanding at an annualised rate of 3%. According to the report released by the Commerce Department on Wednesday, this growth was partly due to businesses using their existing inventories instead of importing.
The second-quarter GDP growth follows a -0.5% decline in the first quarter, which was the first quarterly GDP decline since 2022. The strong economy in the second quarter may be due to businesses reducing imports after stocking up earlier in the year to get ahead of President Trump's tariffs.
In the first quarter of 2023, surging imports negatively affected economic growth. However, in the second quarter, businesses drew from their existing inventories, reversing the import trend and boosting the GDP.
This resilience in the face of tariffs is significant. The tariffs, initially imposed in 2018 and 2019, have affected a majority of US imports, substantially increasing federal tax revenues. According to estimates, the tariffs will have raised federal revenues by $167.7 billion (0.55% of GDP) by 2025.
However, the broader impacts of the tariffs are more complex. Retaliatory tariffs from trade partners like China, Canada, and the EU have been projected to reduce US GDP by an additional 0.2% on a dynamic basis and lower revenues by $132 billion over ten years. The trade tensions have also caused shifts in global trade and investment patterns, with Bloomberg projecting a $2 trillion cumulative hit to the global economy by 2027 due to American protectionism.
The second-quarter GDP growth rate may provide further insights into businesses' inventory management strategies and how they are adapting to economic conditions. The report is part of a series of economic news expected to show the impact of President Donald Trump's economic policies.
In summary, the US economy's second-quarter growth displayed resilience despite Trump's tariffs, which have raised substantial federal revenues and altered trade flows. However, the broader impacts include ongoing trade tensions, retaliatory tariffs, and a projected dampening effect on GDP growth both domestically and globally.
References:
- Tariffs increased federal revenues by $167.7 billion (0.55% of GDP) and affected a majority of US imports[1].
- GDP growth was modest but steady in the second quarter, with distortions due to inventory changes and import timing[2].
- Retaliatory tariffs from trade partners reduced US GDP projections and global growth was impacted up to $2 trillion over several years[1][3].
- Ongoing tariff adjustments continued into 2025 as part of reciprocal trade negotiations[4].
The strong economy in the second quarter may be attributed to businesses adjusting their inventory management strategies amid President Trump's tariffs, thereby reducing imports and reversing the import trend. The tariffs, affecting a majority of US imports, have substantially increased federal tax revenues, amounting to $167.7 billion (0.55% of GDP) by 2025, as reported in the references.
