Tariff Front-Running Caused Massive Import Surge in March
When the government reports first quarter GDP this week, brace yourself: the headline number could look downright recessionary. But don’t be fooled. The American economy, like Mark Twain, may be forced to declare that rumors of its death are greatly exaggerated.
Blame it on tariffs — or more precisely, on businesses behaving rationally ahead of them. Faced with the prospect of new duties later this year, U.S. companies did what any rational economic actor would do: they pulled forward massive quantities of imports. If you know prices are going up, you buy now, not later.
The Census Bureau’s March Advance Economic Indicators Report confirmed it Tuesday morning. Imports surged a jaw-dropping 5.0 percent month-over-month. Consumer goods imports rocketed up 27.5 percent from February, capital goods imports rose 3.8 percent, and automotive vehicle imports jumped 6.6 percent. Meanwhile, exports grew only modestly, up 1.2 percent. The result: the international trade deficit widened sharply to $162.0 billion, up from $147.8 billion in February.
Looking deeper, the year-over-year numbers are even more telling. Imports of consumer goods were up an eye-popping 55.5 percent from March 2024. Capital goods imports rose 22.2 percent year-over-year, and industrial supplies rose 37.8 percent. In other words, this wasn’t a blip. It was a front-loaded flood.
The problem is how GDP is calculated. In the official math that government economists use to calculate growth, GDP = Consumption + Investment + Government Spending + (Exports – Imports). That last bit — net exports — is the spoiler. More imports mean a bigger negative subtraction, even if those imports will eventually be sold to American consumers. Thus, a flood of imports makes GDP look worse, even when underlying domestic demand remains strong.
This isn’t conjecture. Bank of America just slashed its Q1 GDP tracking estimate to −1.2 percent, citing exactly this phenomenon. The Atlanta Fed’s GDPNow model is even gloomier, pegging Q1 at −2.7 percent in its final estimate, with net exports alone dragging GDP growth down by over five percentage points.
But here’s the catch: imports are a “net zero” to the real economy. They tend to hurt GDP in the quarter they arrive because they show up in the imports line, but they also end up in consumption or inventories later. If inventory growth is understated in the short term — as it often is — GDP initially looks worse, only to get revised upward in later reports.
And in fact, inventories tell a more balanced story. Wholesale inventories rose 0.5 percent in March, with both durable and nondurable goods contributing to the increase. Retail inventories declined slightly by 0.1 percent, but that drop was entirely due to motor vehicles and parts, which fell 1.1 percent. Strip that out, and the rest of retail inventories actually grew by 0.4 percent. In other words, businesses are still restocking shelves in most sectors.
The year-over-year growth rates back this up: wholesale inventories were up 2.3 percent from March 2024, and retail inventories up 4.8 percent. None of this is consistent with panic or recession prep. These are the patterns of businesses planning for continued demand.
Front-Running Is a Vote of Confidence in Consumers
Moreover, think about what it means that businesses rushed to import. If CEOs expected a consumer collapse, they wouldn’t be loading up on merchandise. You don’t hoard inventory if you think you’re about to be stuck with it. You do it when you believe buyers will be there.
There are also technical quirks adding noise to the data. A new accounting system introduced by Canadian customs caused delays in reporting some U.S. exports to Canada. Census has issued placeholder estimates that will be revised in June. That likely means exports are being understated right now, and the trade deficit is temporarily exaggerated.
Thus, while the first quarter GDP report might look like an economic obituary, it’s more like an optical illusion. Tariff anticipation — not consumer despair — is driving the ugly headline.
Traders work on the floor of the New York Stock Exchange (NYSE) on April 29, 2025, in New York City. (ANGELA WEISS/AFP via Getty Images)
Of course, that won’t stop Democrats and their allies in the legacy media from greeting a negative GDP print with barely concealed glee. A bad headline number will fit neatly into their preferred narrative of economic mismanagement, regardless of the underlying reality. Expect the usual suspects to trumpet the “recession” line loudly, hoping that most voters never bother to read past the first paragraph.
The lesson for readers: pay less attention to the headline GDP figure this week and more attention to the internals, particularly final domestic sales, non-residential fixed investment excluding structures, and inventories. America’s real economy is still alive, still buying, businesses are still hiring, and output is still growing. It’s just that the statisticians’ formulas, like old sails in a sudden storm, may flap a bit before they fill with wind again.
As Mark Twain might say today, don’t let a dire-sounding headline put you in mourning clothes. This economy still has plenty of life left in it — even if the quarterly scorecard needs some explaining.
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