The Tariff Rollercoaster

In Q1, imports surged 41.3% as businesses front-loaded purchases ahead of Trump’s tariffs, subtracting more than 5 percentage points from headline GDP growth, resulting in Q1 GDP to contract 0.5%.

Q2 saw the exact reverse: imports plunged 30.3% while exports fell only 1.8%, contributing over 5 percentage points to GDP growth, representing the largest 

trade contribution to GDP on record since 1947, enabling Q2 GDP to grow +3.0%.

The tariff rollercoaster is on exhibit with the huge spike in Q1 offset by the big plunge in Q2 (see chart below).

Net-net is that businesses simply drew down inventories built up in Q1, as GDP in the first half of 2025 slowed to +1.2 growth rate.

Volatility in trade should begin to settle down. In July, trade deals were announced with the EU, Japan, South Korea and 5 other Asian countries. Autos, apparel, metals, materials, machinery, however, the most interesting sectors to watch is Pharma: Pharmaceuticals currently have a “tariff holiday” from reciprocal tariffs, but separate pharmaceutical-specific tariffs are expected to be announced soon, potentially at rates of 25% or higher. The industry is in a temporary reprieve period while the administration prepares sector-specific tariffs justified on national security grounds.

August 1 has arrived; stiffer tariffs go into effect today for countries who have not negotiated deals. 

Happy August, Happy Friday