US Economy Shrinks as Inflation Rises and Global Trade Shifts Away from America
As global inflation begins to creep upward again, economic warning lights are flashing across the United States. According to cash buyer Global Marketing Systems (GMS), the U.S. economy contracted in the first quarter of 2025, stoking fears that a recession may be on the horizon. This economic contraction has coincided with a weakening of the U.S. dollar against several currencies of major ship recycling nations, further complicating the international trade landscape.
The decline in the U.S. economy marks a sharp divergence from the relative stability seen in late 2024. GMS’s report points to troubling signs in consumer spending, declining industrial output, and deteriorating trade dynamics as contributors to the downturn. Inflation, which had shown signs of stabilizing last year, has resumed its upward trajectory—driven in part by supply chain disruptions and energy price volatility.
The global shipping and trade sectors, long sensitive to macroeconomic shifts, are already responding to the evolving picture. The Baltic Exchange Dry Index, a benchmark for shipping rates for dry bulk commodities, reported modest gains this week. While this might suggest an uptick in trade activity, the underlying reality is more complex. According to GMS, trade volumes remain sluggish, but freight rates are rising as global economies increasingly forge trade agreements that bypass the United States.
“The geopolitical and economic realignments underway are reshaping freight patterns,” noted a GMS spokesperson. “While trading volumes are not yet back to pre-pandemic levels, the structure of trade is shifting, with regional blocs and bilateral deals gaining ground—many of which do not involve the U.S.”
Adding to the uncertainty is the performance of the global oil market. GMS highlighted a sharp drop in oil futures this week, which fell by 1.6% to $58.29 per barrel. The decline reflects diminishing energy demand coupled with inconsistent policy messaging around sanctions targeting Russia for its ongoing aggression in Ukraine. The instability in oil markets underscores how geopolitical developments continue to exert downward pressure on energy prices—even as they drive up overall uncertainty in trade and industrial production.
The pressure isn’t confined to energy alone. Steel markets, particularly in Asia’s ship recycling hubs, are also facing turbulence. GMS reports that steel plate prices across the Indian subcontinent and China have either stalled or declined. “Flatlining seems to be the theme of the week,” the report states, attributing the stagnant pricing to weakened demand and trade slowdowns in the region.
This comes at a time when South Asia’s ship recycling industry, particularly in Bangladesh, is emerging from a month-long disruption. Activity had ground to a halt due to a suspension of No Objection Certificates (NOCs) required for incoming vessels. The delay was attributed to ongoing inspections by various government departments to ensure compliance with Hong Kong Convention standards—a set of international safety and environmental guidelines for ship recycling.
The halt in approvals stifled market momentum and led to minimal sales and deliveries. Only recently have NOCs begun to be granted again, allowing operations to gradually resume. Seven yards in Chattogram are now fully compliant with the Hong Kong Convention, but about 20 others remain in limbo as they await accreditation. Each of these yards is at a different stage in their upgrade process, creating an uneven playing field and leaving many shipowners and cash buyers looking toward alternative destinations like Pakistan and India.
However, the outlook in these alternative markets is far from rosy. Rising political tensions between India and Pakistan—sparked by a terrorist attack in Kashmir’s Pahalgam city that left 26 people dead—have injected a fresh layer of instability into the region. The attack has escalated military readiness and inflamed nationalist rhetoric in both countries, with potential ramifications for regional trade and industry coordination.
“Overall, as tonnage scarcities and shaky fundamentals result in ship recycling activity being dragged through a bumbling backseat across sub-continent backroads for another week, particularly as global markets struggle to recover (and negotiate) following the sharp shock of Trump’s tariff reforms, this is keeping shipping markets propped up depriving recyclers of viable candidates for another week,” GMS noted in its weekly report.
These Trump-era tariffs, though partially rolled back, have left a lasting impact on the global trade order, contributing to the fragmentation seen in recent years. As the international community shifts toward new trade agreements and supply chain realignments—many of which increasingly exclude the U.S.—American exporters and industrial sectors face rising competitive pressure.
Despite the grim economic backdrop, prices and demand in ship recycling markets remain largely unchanged from the previous week. Yet GMS highlights a growing atmosphere of caution among recyclers, who are keeping a watchful eye on available tonnage. Many are hesitant to make bold moves until macroeconomic indicators and geopolitical tensions offer a clearer outlook.
In summary, the world economy is entering a phase of recalibration, marked by rising inflation, declining U.S. economic performance, shifting global trade alignments, and unstable commodity markets. For the shipping and recycling industries, the challenges are steep—and the path ahead remains uncertain. But with NOCs beginning to clear in Bangladesh and freight rates inching up, there may be early signs of adaptation taking root in this volatile global landscape.
