US economy shrinks 0.3% in first quarter amid tariffs and trade wars
The U.S. economy contracted by 0.3% in the first quarter of 2025, according to early estimates from the Commerce Department, marking the first drop in three years.
This shrinkage came amid a surge in imports, as businesses rushed to stockpile inventory and procure overseas goods ahead of the full impact of ongoing tariffs and trade wars.
The contraction comes on the heels of a 2.4% growth in the final quarter of 2024, heightening concerns of a potential technical recession and increasing economic uncertainty for businesses.
In particular, U.S. tariffs, including a baseline 10% tariff on nearly all foreign imports, have raised the stakes. Tariffs are scaled up for countries like the European Union (20%), Japan (24%), and South Africa (30%), while U.S.-China relations continue to be strained.
The situation was exacerbated by alterations to the 145% tariff initially placed on Chinese imports, leading to a 65% decrease in Chinese e-commerce exports to the U.S.
Mark McCarthy, Chief Revenue Officer at Basware, highlighted the broader implications of the tariff-induced uncertainty on enterprise IT spending.
“Trade wars and tariff uncertainty introduce volatility into the global economy. For major enterprises, especially those with complex supply chains or international footprints, this creates hesitation around IT spending,” McCarthy said.
Despite these challenges, companies are prioritizing investments in areas that minimize implementation risk while delivering quick, measurable returns.
One such area is Accounts Payable (AP) automation, a critical tool for ensuring timely payments to suppliers, who are often more sensitive to payment timing during economic turbulence.
Research shows that up to 90% of businesses pay suppliers late, but automated solutions can streamline invoice processing, reducing the time from 10 days to under four, ensuring healthier supplier relationships during challenging times.
The economic uncertainty also makes companies more vulnerable to fraud, with over 70% of businesses falling victim to invoice or payment fraud annually.
AI-powered solutions now help businesses detect suspicious patterns and potential errors early, protecting against an uptick in fraud, such as vendor impersonation scams.
These solutions also enable the fast recovery of incorrect payments, providing hard-dollar savings to offset rising costs in other areas of the business.
While macroeconomic challenges may not eliminate IT spending, they are reshaping its focus.
“Organizations who optimize their tech solutions and align their strategic priorities in the areas that create the biggest impact will be the ones that come out on top,” McCarthy concluded.