Why is US GDP growth slowing, and how can it be reversed?

Published 30 July 2026 · finance

Tariffs and oil price hikes create a supply shock, dragging down US economic growth in the second quarter of 2026. United States economic growth slowed

Tariffs and oil price hikes create a supply shock, dragging down US economic growth in the second quarter of 2026. United States economic growth slowed in the second quarter of 2026 amid a growing deficit and increasing inflationary pressures. US gross domestic product (GDP) grew by 1.5 percent between April and June. That is a sharp decline from 2.1 percent growth in the first quarter of the year, according to a Bureau of Economic Analysis (BEA) report released on Thursday. A widening trade deficit is a key reason why GDP is slowing, as is a jump in petrol prices, experts say. “It’s a classic supply shock. The combination of tariffs and oil price spikes is exactly what a macroeconomist would expect to happen,” Michael Klein, professor of international economic affairs at The Fletcher School at Tufts University, told Al Jazeera. The US has increased purchases of goods like semiconductors, telecommunications equipment, and industrial equipment, according to BEA data. Business investment in equipment rose by more than 15 percent in the second quarter. Those are essentially the elements needed for the ongoing investment boom to support the growth of artificial intelligence (AI). “Imports rose due to the investment and consumption driver, and so net exports were a drag on overall growth. Overall, the US is investing and consuming more but not producing more,” Rachel Ziemba, adjunct senior fellow at the Center for a New American Security, told Al Jazeera.

Exports have not kept pace. The trade deficit in May grew to $77.6bn, a 42 percent increase from the month before, according to BEA data. Exports tumbled by 3.2 percent to $317.7bn, and imports rose by 3.3 percent to $395.3bn. This comes as countries around the globe seek to reduce their dependence on the US due to President Donald Trump’s tariff policies. Among them is Canada, historically one of the US’s biggest trading partners. Canadian Prime Minister Mark Carney has pursued new trade deals with China and Saudi Arabia in recent months, for example, as Trump has slapped steep tariffs on the country, threatened to annex it and called it the 51st state, and refused to renew a trade deal with Canada and Mexico. Are US tensions with Iran a factor? In the second quarter, energy prices fluctuated greatly over the past few months. For US consumers, that was mostly reflected in petrol prices. During the second quarter, US petrol prices hit $4.48 per gallon (3.78 litres) in May. They later retreated to $3.96 per gallon by the end of June. But the reprieve was short-lived as a fragile peace deal failed to take hold, with petrol prices increasing throughout July after the deadline for data to be included in second-quarter GDP had passed. Prices have since moved back above the $4 mark. Petrol prices drove inflation for much of the second quarter. Between March and April, petrol prices jumped 5.4 percent.