The Structural Impact of the 2025 U.S. “Liberation Day Tariffs” Across States and Sectors
Introduction
In April 2025, the U.S. government announced a sweeping set of tariff increases targeting a range of international trading partners—dubbed the “Liberation Day Tariffs”. This move escalated global trade tensions and prompted a fresh round of economic analysis on its long-term implications.
A recent working paper published by the National Bureau of Economic Research (NBER), authored by Rodríguez-Clare, Ulate, and Vasquez (2025), sheds new light on how these tariffs impact not only the national economy but also individual U.S. states and key sectors differently.
Key Takeaways: Winners, Losers, and Unseen Costs
🔻 National Economic Loss
Between 2024 and 2028, the United States is projected to suffer a 1% cumulative decline in real income. While manufacturing may experience a short-lived boost, services and agriculture are forecasted to face lasting setbacks.
📉 State-Level Divergence
The report highlights that tariff shocks do not affect all U.S. states equally:
- Heavily impacted states:
- California: Dependence on tech imports
- Texas: Manufacturing hub
- Michigan: Auto industry ties to Canada and Mexico
These states could experience real income drops exceeding 3%.
- Less affected states:
- Colorado, Nebraska, and Oklahoma show limited impact due to economic composition (service-based or agricultural self-sufficiency).
Sector-Specific Breakdown
🏭 Manufacturing: A Short-Term Illusion
- Boom: Tariffs make imports costlier, shifting demand to domestic producers. This raises manufacturing wages and output—real value-added jumps by 1.7% at its peak.
- Bust: By 2029, demand drops off, triggering layoffs and unemployment rises by 0.5%.
📉 Services & 📉 Agriculture: Quiet Casualties
- Services: As a net exporter of services, reduced global demand shrinks U.S. service exports. By 2028, real value-added in the sector is expected to drop 2.5%.
- Agriculture: Though balanced in trade, the sector suffers from rising input costs. By 2028, real agricultural output is projected to decline over 3%.
Why Do Tariffs Hurt Consumers?
- Shrinking Paychecks: Higher prices reduce purchasing power—real wages decline by 1.4%.
- Changing Labor Choices: With market productivity falling, more people turn to home-based production (gig work, freelancing), reducing labor participation by 0.65%.
Global Reactions: Not All Lose
- Biggest Losers:
- Canada: -2%
- Mexico: -2.7%
- Ireland: -3%
All heavily reliant on U.S. trade.
- Unexpected Gainers:
- Turkey and UK benefit modestly from redirected trade due to softer U.S. tariffs on their exports.
Can Tariffs Ever Be Beneficial?
Surprisingly, in low-trade-elasticity environments (where U.S. markets are hard to replace), the model suggests that tariffs might increase labor participation and raise incomes by up to 0.4%.
However, this comes with caveats: long-term investment uncertainty, geopolitical instability, and underrepresented hidden costs could reverse these outcomes.
Final Thought
The 2025 tariff escalation highlights a bitter truth: in the global economy, there are rarely true winners in a trade war. While some states and sectors may momentarily benefit, the broader economic and social welfare costs are significant and long-lasting.
Collaboration, not confrontation, remains the most sustainable path for economic resilience.
