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

United States economic growth contracted significantly in the second quarter of 2026, expanding at an annual rate of 1.5 percent compared to 2.1 percent in the opening quarter, according to data released Thursday by the Bureau of Economic Analysis. The slowdown reflects mounting trade deficits and inflationary pressures stemming from energy costs.

Michael Klein, professor of international economic affairs at The Fletcher School at Tufts University, characterized the situation as a textbook supply shock, attributing it to the combined effects of tariff policies and petroleum price volatility. The trade deficit in May reached $77.6 billion, representing a 42 percent increase from April. During the same period, exports fell 3.2 percent to $317.7 billion while imports climbed 3.3 percent to $395.3 billion.

US business investment in equipment surged more than 15 percent during the quarter, reflecting increased purchases of semiconductors, telecommunications equipment, and industrial machinery needed to support artificial intelligence infrastructure development. However, this investment and consumption growth was not matched by domestic production gains. Rachel Ziemba, adjunct senior fellow at the Center for a New American Security, noted that the United States is investing and consuming more while producing less, with net exports acting as a drag on overall growth.

Energy markets created additional headwinds. Petrol prices peaked at $4.48 per gallon in May before retreating to $3.96 by late June, only to resume climbing in July. Between March and April, fuel prices jumped 5.4 percent, followed by another 7 percent increase in May, before easing 9.7 percent between May and June.

Global trade dynamics have shifted as countries reduce reliance on the United States amid tariff policies. Canada, historically a major trading partner, has pursued new trade agreements with China and Saudi Arabia in response to steep American tariffs and trade tensions.