Since the start of Trump's second term, tariffs and China have consistently been front of mind. On so-called "liberation day," April 2 2025, tariffs were set on China at an astonishing 145%, and China retaliated with 125% tariffs with alacrity. While tariffs on China have been reduced to a promised 34% after negotiations in Geneva, we are left to wonder what will precisely be the effect of this significant tax on imports from the world's largest exporter to the U.S.?
In this piece, we calculate the potential effect based on a state-of-the-art model from UC San Diego's Global Prosperity Lab headed by Professor Marc Muendler. We show that even these reduced tariffs on China, which represent just a portion of the tariffs Trump had promised against most of our trading partners, threaten to cancel out a large portion of real wage growth. We show how the impact is likely to play out across different industries and affect red, blue and purple states. We then turn to two tariff hypotheticals: one in which a trade deal restores tariffs to their pre-Trump status, and another in which rising tensions push tariffs toward the promised realm of 145%.
As the dust settles on a general 34% tariff on Chinese goods (not counting recent tariffs on subsets of goods like aluminum and copper products) after months of unpredictable changes since April 2nd, we find ourselves in a situation where the U.S. economy likely will face billions of dollars in reduced real income and lower rate of GDP growth.
The impact on states varies depending on existing momentum in wage growth and the composition of industries in the state. For some states, many of which voted for Trump, much of the expected income growth might be wiped out. Even in the current "moderate" scenario, which represents an over 90% tariff reduction from peak levels, residents in some states would suffer noticeable harm from higher prices and slower wage increases. For example, North Dakota, Alaska and Wyoming, all red states, will see real income erode by 0.4% to over 0.5% due to the tariffs. Other states would see less negative impact, but still experience contraction in real income (see Figure 1a below).
In the case of Alaska, if it originally was going to have a real income growth of 0.3% (its real income growth in 2023), the impact of the China tariff alone would have more than wiped out its yearly real income growth, rendering real wage growth in Alaska negative (Figure 1b). Similarly, Pennsylvania and Indiana, both states which voted for President Trump, would see their expected real wage growth wiped out from the tariffs (Figure 1b). West Virginia only had real income growth of 0.6% in 2023, and a 34% tariff on Chinese goods alone would have more than halved its real income growth that year. Kentucky and Delaware face similar impacts on real wage growth. For states like North Dakota, Iowa, Alabama, and Minnesota, which actually had negative income growth in 2023, the tariff would have made a bad situation worse. In North Dakota, for example, a -1.8% in income growth for the year would have turned into -2.33% in income growth, representing over $370 less in real income for the average household.
To be sure, this impact is not catastrophic for most households. However, over time, this reduction in purchasing power will reduce upfront spending by consumers, which will slow growth, and lessen savings on the margin by middle and lower income households because they have to spend a larger share of their nominal income on daily necessities. If the tariffs continue to be in place for years to come, the income and savings impact will multiply. At a time when social security and employer provided savings plans are increasingly inadequate for retirement, the tariffs might render millions of Americans significantly less prepared for retirement over time.
Some politicians argue that protectionist tariffs would benefit most industrial sectors and workers employed in them. The reality is much more complicated. Tariffs lead to generally higher prices for all goods and intermediate goods for some sectors, hampering growth potential. In addition, retaliatory tariffs from China also would lead to lower income for workers in exposed sectors. Our sectoral analysis for the post-Geneva tariff levels shows these complicated dynamics.
For sectors like chemicals and computer and electronic products, higher prices for intermediate goods are expected to lower output and the average real income of those employed in these sectors by close to 2.5%. For sectors like oil/gas, agriculture and transportation equipment, which exported billions of dollars worth of products to China last year, their income will be compressed by higher tariffs and weaker demand from China, lowering average real income of workers in those sectors. For an agricultural worker, this "milder" trade war will cost them 1.98% of their real income, hundreds of dollars this year in real purchasing power.
To be sure, some sectors will gain from protectionism, especially U.S. makers of plastic, metal products, furniture, and electrical equipment. However, these beneficiary sectors altogether only make up much less than ⅕ of total value added in the United States. Skilled furniture makers in the U.S. are expected to have a real income increase of 6.66%, which are substantial gains which only accrue to a tiny number of workers. The few thousand who benefit will be more than offset by millions whose real incomes decline.
While the above analysis clarifies the likely impact of current tariffs, on-going negotiations with a host of countries have made uncertainty the defining feature of tariff policy. Beyond the back-and-forth with China, where tariffs spiked in a tit-for-tat cycle between April 9th and 11th before easing with the tentative deal in July, the unpredictability of tariff rates across industries, commodities and nations underscores that we cannot stop at just predicting the effects of currently announced rates.
Thus, we outline two hypothetical scenarios: first, a worst-case outcome in which escalating tensions push tariffs back to 145%; and second, a more panglossian scenario which brings tariffs down to Trump's first-term levels after negotiations.
In the worst case, nearly every U.S. state would suffer large declines in real wages, with Alaska, North Dakota, Wyoming, West Virginia, and Louisiana hit hardest. Only Oregon and New Hampshire would see very modest gains. Compared with the current tariff regime, real wage losses in this scenario would be significantly amplified. For example, Alaska's projected decline of -1.22% is more than double the current estimate of -0.48%, and West Virginia's loss would nearly triple from -0.33% to -0.9%.
Figure 4b also shows the magnitude of these effects relative to recent wage gains. Under a 145% tariff regime on China, more than five years of recent wage gains would be erased nationwide, while in North Dakota and Wyoming, four years of gains would vanish. In total, six states would lose at least one year of real income growth, though New England states of Massachusetts, New Hampshire, Rhode Island, and Vermont seem to be minimally impacted, even under this extreme tariff.
Sectorally, such a high tariff regime would reduce real incomes for workers in agriculture, transportation equipment, and oil and gas exploration. Even for the broad majority of service sectors, which employ the bulk of American workers, workers' real wages would fall. In contrast, industries heavily reliant on Chinese imports — such as fabricated metal products, electrical equipment, plastics, and computer and electronic manufacturing — would see modest real wage gains from import substitution, but these sectors employ a small share of U.S. workers (Figure 6).
Conversely, if tariffs were rolled back to pre-2018 levels — before Trump's first-term trade war — real wages would rise in nearly every state, except for New Hampshire and Wisconsin that show negligible declines (between -0.01% and -0.05%). North Dakota would post the largest gain at 1.29%. In Alaska, Indiana, Kentucky, and Pennsylvania, the rollback would add over a year's worth of wage gains (Figure 7b).
Figure 9 shows that a less extensive tariff regime would deliver real wage increases to workers across the vast majority of sectors. Even in manufacturing sectors adversely affected by lower tariffs, real wage losses would remain in the low single-digits. These disparities highlight the distributional consequences of tariffs: their impact depends on whether workers are employed in sectors exposed to Chinese competition or protected by import barriers. Yet the sectors that lose under higher tariffs represent a far larger share of the economy than those that gain.
In the first few months of 2025, the Trump Administration enacted dramatic changes in the American tariff regime in the name of protecting American industries and workers from unfair competition. Yet our analysis reveals a much more complex picture of the tariff's impacts. While higher tariffs on Chinese-made goods may benefit certain industries and the income of workers within them, their gains must be balanced against the vast majority of workers — many in traditionally Republican states — who face income losses.
Even at current tariff levels, workers in Alaska, Pennsylvania, and Kentucky will see a year's worth of recent wage gains erased. Should trade negotiations fail and tariffs rise further, workers in several states would lose several years' of income growth. Such outcomes would have significant economic and social consequences for large swaths of American society. As policymakers ponder the next step in US trade policy, these impacts must be taken into account.
Victor Shih, Director, 21st Century China Center; Professor, and Ho Miu Lam Chair in China and Pacific Relations, UC San Diego School of Global Policy and Strategy
Lei Guang, So Family Executive Director, 21st Century China Center, UC San Diego School of Global Policy and Strategy
Harris Doshay, Assistant Director of Research and Writing, 21st Century China Center, UC San Diego School of Global Policy and Strategy.
Junyuan Chen, Postdoctoral Researcher in Economics, UC San Diego Department of Economics.
Young Yang, Research Data Analyst, China Data Lab at the 21st Century China Center, UC San Diego School of Global Policy and Strategy.