U.S. GDP Expected to Rebound 2.4% in Q2 Amid Trade Uncertainty

The upcoming release of the second quarter GDP initial value by the U.S. Department of Commerce may indicate an economic rebound, but trade policy disruptions and structural weakness are obscuring the true growth momentum. According to a survey of economists, after contracting by 0.5% in the first quarter, the GDP growth rate for April to June could reach 2.4% on an annualized basis. However, some institutions have revised their forecasts upward to 3.3% following adjustments to the latest trade and inventory data. This optimistic figure is supported by a technical narrowing of the trade deficit to a near two-year low and a slight increase in inventory, rather than a substantial improvement in domestic demand.

The ongoing trade protectionism policies of the Trump administration are a key factor in the distortion of current economic data. In the first quarter, trade contributed a record low of 4.61 percentage points to GDP. While this may partially reverse in the second quarter, the reduction in import flows leading to low inventory levels partially offsets the GDP growth driven by trade expansion.

Economists have noted that the GDP data for the past two quarters have not accurately reflected the underlying economic fundamentals. The uncertainty surrounding tariff policies has permeated the decision-making processes of businesses, leading to widespread cautious sentiment. The cost of tariffs is expected to gradually filter into inflation data, eroding residents' real disposable income and dampening consumption intentions.

The performance of consumption and investment underscores the lack of internal economic momentum. As the largest component of the economy, consumption expenditure, which stagnated in the first quarter, is expected to see only a modest recovery. Business equipment investment is likely to continue its sluggish trend. Meanwhile, while the Tax Cuts and Jobs Act has removed some fiscal policy uncertainties, its tax cuts and spending provisions are expected to add 3.4 trillion dollars to the U.S. federal debt, driving real GDP growth by only 0.5% per year over the next decade, raising questions about its policy effectiveness.

The labor market is a key area of focus. As long as the scale of layoffs does not significantly expand, the economy may be able to maintain growth in the second half of the year, reducing the urgency for the Federal Reserve to cut interest rates in the short term. Market expectations suggest that after maintaining the interest rate range of 4.25% to 4.50% in June, the Federal Reserve's next rate cut may be delayed until December.

While advancements in technology such as artificial intelligence may boost productivity, the tightening of immigration policies has slowed labor force growth, making it difficult for technological progress alone to sustain economic growth.

The current economic landscape presents a contradictory picture: the second quarter GDP may show a technical rebound, but the annual growth rate is expected to drop from 2.8% in 2024 to 1.5% or even lower. About 60% of imported goods are still not covered by trade agreements, and the actual tariff level is at its highest since the 1930s. In this context, the growth rate of final sales to domestic private buyers is expected to be lower than the 1.9% seen in the first quarter, indicating weak growth in terminal demand. Balancing trade protectionism with economic growth is a challenge faced by policymakers and businesses alike.