submitted by
Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast
Liberation Day, as coined by the current administration, was intended to represent the freeing of the U.S. economy from “devastating” imports, the beginning of the restoration of U.S. manufacturing, and ultimately reducing “destructive” trade deficits.
But the market had other ideas.
The announcement of Liberation Day was then met by an almost 1,700-point drop in the Dow Jones Industrial Average. How liberating.
Given that stock prices are based on a combination of both current earnings and future earnings–along with risk–a significant drop in the Dow is difficult to reconcile with liberation from being “ripped off”. The violent market reaction on April 2nd reflected one thing: a recalibration toward slower economic growth and weaker earnings potential.
Just a week later, on April 9th, after a confounding combination of increasing 10-Year Treasury yields and a declining dollar value—increasing Treasury yields usually result in a stronger dollar–the administration announced a 90-day pause, except for China, of the so-called reciprocal tariffs. The April 2nd tariff calculations could generously be described as bewildering and had spooked the market. The pause, however, sparked a celebration, sending the Dow soaring nearly 3,000 points. Over the following month, the Dow then added another 641 points.
Then came May 12th. The administration announced a reduction of the 145% tariffs on China down to 10%, with another 20% for the fentanyl concerns. Once again, markets cheered, and the Dow surged another 1,200 points. As of this writing, the index has stabilized near its May 12th level, still about 2,400 points off the record high.
So, what have we learned?
Markets do not like tariffs. Every pause, rollback, or softening of the tariff rhetoric has been met with a surge. The message is unmistakable.
We know what the stock market is telling us about tariffs, but what could happen if tariff increases are ultimately sustained?
In 2018, tariffs were implemented under the guise of restoring U.S. manufacturing. If that effort had succeeded, we’d expect to see the evidence in key indicators. We do have the data, and it tells a different story.
At the start of 2018, just prior to the implementation of various tariffs, the ISM Index, a measure of the state of manufacturing, registered just under 60, firmly in expansion territory. In August 2018, shortly after the implementation of tariffs, the ISM peaked at 60 and then began a steady descent, entering contraction territory, and hitting a level of 48, just before the pandemic.
Industrial production, an overall measure of manufacturing activity, peaked in September 2018, and then declined steadily through 2019, turning negative year over year, just before the pandemic.
In short, no manufacturing surge followed the tariffs.
Now, let’s look at jobs.
One of the marquee moves in 2018 was the 25% tariff on steel, implemented in March. Both Kentucky and Indiana have significant employment in primary steel manufacturing and in fabricated metals, the latter of which uses steel to produce parts for automotive, construction, and consumer goods sectors. So, here’s what happened.
At the start of 2018, primary steel manufacturers employed 53,000 across Indiana and Kentucky. Just prior to Covid, employment stood at 54,000, an addition of 1,000 employees that existed prior to tariffs. Most recently, employment in both states was at 56,000, for an overall gain of 3,000 jobs.
For fabricated metals, employment at the start of 2018 was at 83,000 across Indiana and Kentucky. Just prior to Covid, employment had declined to 81,000. The most recent numbers show that employment in fabricated metals is now at 79,000, an overall loss of 4,000 jobs since early 2018.
So, the industry that received protection from tariffs gained 3,000 jobs from 2018 to 2025. The industry that uses steel for its products lost 4,000 jobs. Add these together and we get a net result of a loss of 1,000 jobs across Indiana and Kentucky. Nationally, the story is even clearer: the change in jobs for both industries is a net negative of 6,100. Primary steel manufacturers show a plus 900 jobs, but fabricated metals lost 7,000 jobs.
What we see is textbook tariff economics: a few winners, often concentrated and visible, and many losers, dispersed and harder to quantify but no less real. The benefits accrue to protected industries, but the costs are spread widely across supply chains, businesses, and consumers. As tariffs increase, so do input costs. That weakens competitiveness, dampens investment, and leads to job losses in downstream industries. And that’s why the stock market responds so dramatically. It sees the broader economic damage. In the end, Liberation Day may have made for a strong headline. But for the economy, and especially for financial markets, it’s been anything but liberating.
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