Tariff Phenomenon Messes With GDP

Tariff front-running is a phenomenon whereby would-be future purchasers of imported items advance the timing of those buys to avoid possible future costs due to increases in tariffs.

Tariff front-running had a material impact on the U.S. economy in the first quarter of 2025. Both households and businesses stepped up purchases of foreign goods, buying in advance of need to get ahead of tariff increases announced by the Trump Administration. As a result, imports experienced an unusually large surge, advancing an annualized 42.6% in the first quarter.

This had two major counter-balancing impacts on the U.S. economy.

• First, it created a positive impact on real GDP. Since front-running purchases occurred in advance of need, a portion of those purchases were simply put aside for storage awaiting a future need for their use. In effect, they were investments in inventory. Since investment, including inventory investment, is included in the accounting for GDP, this boosted real GDP growth. During the first quarter, inventory investment was up by nearly $200 billion annualized—enough to add more than 2.5 percentage points to annualized real GDP growth.
• Second, it created an even larger offsetting negative impact on real GDP. Imports represent items used to satisfy domestic demand for goods and services, but they are not produced domestically. Because they are a substitute for domestic production, increases in imports are a negative in the calculation of real GDP. During the first quarter, imports advanced by more than $400 billion annualized. This had the effect of reducing the annualized growth rate of real GDP by nearly 5.0 percentage points.

As one might guess, the economic effects of tariff front-running will likely be unwound by its own accord in coming quarters, but the timing is unclear. The Trump Administration’s off-again, on-again approach to tariffs makes both the path and the endgame of tariff policy highly uncertain. Each tariff announcement and subsequent postponement creates some kind of window for front running.

That said, it currently appears that the bulk of front-running has been concluded, as import levels imploded in April. AMG currently projects falling imports will contribute an average of roughly 2.9 percentage points to quarterly real GDP growth over the last three quarters of 2025, while falling inventory investment subtracts an average of about 1.3 percentage points.