Gross Domestic Product measures all economic output produced within a country. By definition, imports of goods produced outside of the U.S. do not impact GDP growth as released by the Bureau of Economic Analysis (BEA). Yet the news media and even the BEA itself use misleading and frankly incorrect language in their quarterly reports, implying that imports raise or lower GDP immediately. In the current policy environment, as tariffs take effect and lower imports, we want to use this post to educate our clients about this misinformation.

As a good (or bad) example, in the official release of the third estimate for 2Q25 GDP, the BEA stated that the strong GDP report was in part due to “a downturn in imports.” This is similar to language used during the Biden administration. Imports represent production or services produced outside of the U.S. and by definition are not included in Gross Domestic Product.

The confusion stems from the oft-used shorthand to represent Gross Domestic Product:

GDP = C + I + G + X – M

The letters in this equation refer to consumption (C), investment (I), government (G), exports (X), and imports (M), the variables calculated from the National Income and Product Accounts (NIPA) reporting, which is gross of imports. So I would suggest that you keep the following equation in the back of your mind:

GDP = C (domestic + imports) + I (domestic + imports) + G (domestic + imports) + X – M (imports reported in consumption, investment, and government)

Net exports (X – M) in the equation above is a policy term thrown around to gauge how much a country exports vs. imports. A positive net export value suggests a country exports more than it imports. Net exports is an accounting variable, often used in policy discussion, but it is often taken out of context (i.e., ignoring the import components of C, I, and G), and it is used to suggest that a decline in imports increases GDP.

Finally, here’s where it gets particularly tricky: Imports can and do impact GDP, but in a more indirect fashion, through potential GDP. If a consumer purchases an imported car, rather than a domestically produced car, this purchase does not show up in GDP. However, the purchase would presumably reduce sales of domestic cars by one car and would ultimately impact GDP.

Stated a different way, if the consumer chose to buy a domestic car instead of an imported car, sales and GDP would go up, while imports would go down by the value of that one car. GDP goes up because the consumer purchased the domestic car, not because imports went down. In other words, tariffs that make imports more expensive and reduce their quantity may ultimately have their desired effect of increasing U.S. GDP, but this does not happen immediately.