As US economy dips, it’s good business for India’s exports
Surging trade deficit has severest impact on America’s GDP since 1947
The United States’ economy contracted by 0.3 per cent in the first quarter of calendar year 2025 (Q1 CY25): the first time it happened so since early 2022. As US imports surged in Q1 CY25, India may have gained a bit.
Private consumption and investment expenditure grew in Q1 CY25, but huge spikes in imports of goods and services led to US gross domestic product (GDP) dipping. Imports increased at a seasonally adjusted annual rate of 41.3 per cent. Further, goods’ imports grew at a rate of roughly 51 per cent.
According to Reuters, the US trade deficit widened to a record high in March as businesses bumped up imports of goods ahead of President Donald Trump’s tariffs. Economists expect imports to ebb by May, helping the GDP to rebound in the second quarter.
Personal consumption grew at a seasonally adjusted annual rate of 1.8 per cent, contributing 1.21 percentage points to the GDP. Gross private domestic investment grew 21.9 per cent, adding 3.6 pp to GDP growth rate in Q1 CY25. But a major trade deficit cut a record 4.83 pp from GDP, coupled with a dip in government consumption and gross investment (0.25 pp). This pulled down the GDP into the negative zone for the first time in three years.
It is interesting to note that the trade deficit shrinking the US GDP by 4.83 pp in Q1 FY25 is the highest ever negative contribution of net exports recorded since 1947 – the earliest official data available on the Bureau of Economic Analysis site of the US.
Starting 2008, when the global financial crisis broke out, the US GDP has declined in 12 separate quarters. Between Q3 CY08 and Q2 CY09, the negative growth in private consumption and investment contributed to GDP contraction. The same trend was visible in Q1 and Q2 of 2020, when the coronavirus pandemic started.
The situation in Q1 CY22 appears to have been repeated in Q1 CY25 when high growth in net imports offset the positive growth in private consumption and investment, leading to a fall in domestic output (chart 1, click image for interactive link).
India exported goods worth $26.58 billion to the US in Q4 FY25 (Q1 CY25 of the US), according to data at the Indian government’s NIRYAT portal. It was the highest export figure in any quarter of FY25. Electronic and engineering goods made the bulk of exports, valued at $6.62 billion and $5.18 billion respectively.
Apple CEO Tim Cook said last week that most iPhones sold in the US in Q2 CY25 will have India as their “country of origin”. Electronics and engineering goods are the largest cohort of goods India exported to the US in FY25 (chart 2).
As much as 37 per cent of the manufactured goods purchased in the US in 2023 were imported final goods, according to a report called ‘Purchased in America, 2023’. The apparel and leather sector comprised 88 per cent of imports — the highest. As much as 69 per cent of computer and electronic products were imported final goods (chart 3).
