The Time of the Red

The explosion was technically an air blast, as the detonation went off at roughly 366m/yds (Little Boy, in comparison, had a detonation height of about 579m/yds). While this lessened overall long-term radioactivity, most of what remained penetrated only the huge skyscraper towers surrounding the blast (they were later scraped off and buried as fill in the Bay). The high blast area and the tons of raw concrete and steel instantly converted into particulate debris covering the entire NorCal region and far out to sea for many months, as well as igniting a fierce firestorm that covered thousands of acres beyond the City.
This combined dust cloud spiraled up into the sky and turned it red with particulate matter for almost two years. Even several years after the blast, suspended particles caused the skies at dawn and dusk to glow a lurid red, inspiring people who lived through that era to call it the Time of the Red.

Survival Mode

After the Bomb (2023-2025)
Night City was barely habitable within 24 hours of the detonation. Many people were unaffected by the initial fallout as they were mostly cybered up or had radioactive filters installed in their bodies already. However, the firestorm destroyed a large part of Night City's housing, forcing people to move over to either the suburbs on the other side of the bay, or to area further out. Worse, Night City was largely built on layers of fill: sand and earth which, triggered by the explosion of the Bomb, liquefacted and turned to jello. The shaking soil broke gas mains, water pipes, and electrical grids. Streets became twisted chunks of asphalt strewn with wrecked ground cars, while fallen AVs littered the sides of broken skyscrapers. Night City was in ruins, although still not as bad as other cities like Rio and Hong Kong.
Most of the areas around Night City had been abandoned during the Collapse. But now, people started moving East as soon as they could. Neighborhoods found a new unity and purpose, even if it was grudgingly and with little trust. They weren't looking for rebuilding yet. They were looking for food. In a wasteland of ruins, gangs, renegade Corporate fighters, and radioactive wreckage, Night City was in survival mode.
And survival is what the inhabitants of Night City do best.

The Recovery

After the Bomb (2030-2040)
President Kress blamed the Night City attack on Arasaka, although she was soon able to determine that the actual weapon used had been supplied by a Militech strike team. The Big Lie was that Arasaka blew up the Corporate Center in an area denial attack to stop Militech from seizing the Arasaka's Night City office. In point of fact, Arasaka did actually have a much larger thermonuclear device buried in the foundations of the Towers for just that reason, but the explosion of the Militech pocket nuke rendered this plan inoperable. No one knows where the Arasaka Bomb actually wound up after the Fall of the Towers, and since only a few of the upper echelon of the zaibatsu (such as Kei and his father Saburo) even knew about this fallback, the knowledge of the Arasaka weapon has since passed into the realm of rumor.

The Realm of Conspiracy & Rumor

Very few people knew anything about the Militech-backed strike team or its composition. Rumor has it that Morgan Blackhand, operating as a hidden government asset, passed the information about the failed raid on to President Elizabeth Kress independently; this is still only in the realm of rumor, as no one has seen Morgan Blackhand alive or dead since the Fall of the Towers. In any case, Kress used this (and the reactivation of General Lundee's commission) to gain leverage over Militech, bringing it to heel and nationalizing its assets as part of a resurgent U.S. government. Bringing the full force of her military and propaganda resources to bear, Kress painted a lurid picture of Arasaka as an evil foreign Megacorp run by a madman who wantonly destroyed an American city in the pursuit of personal power. Arasaka's charters to operate in the United States were immediately revoked, its members and board declared terrorists, and their assets either seized or driven offshore.
Yet, for all this political theater, Kress showed little or no interest in helping Night City recover. Much as several previous Presidents during the Collapse had done, she wrote the city off as unrecoverable and offered sanctuary in a new United States to the surviving refugees. There were two reasons for this: First, with the resources of the United States already stretched to the breaking point, there were exceedingly few options left for Kress. Second, the flinty and farsighted American President saw this as the perfect way to bring the wayward "Free States of NorCal" (and its lucrative technology base) back into the government's control.
But stubborn to the end, Night City fought back.

Night City Rebuilding

After the Bomb (2040-2045)
While its impact on the United States outside of the Boston Washington (BosWash) Corridor was negligible, roughly 2 million people in the greater Night City region were homeless from direct effects of the Bomb, as well as from flooding by the liquefaction of the City's foundations (which were built on fill and sand). Survivors fled into overcrowded tent cities in the surrounding suburbs of North Oak, Westbrook, Pacifica, Heywood, and South Night City. But it was soon obvious that something needed to be done fast.
The remnants of the Night City government turned to outside resources, calling in old markers and favors from a wide variety of Edgerunner allies. Recovery was led by the Nomads of the Aldecaldo Clan and their allies in the StormTech Corporation. With a lot of experience in city rebuilding since the Chicago rebuild, StormTech and the Aldecaldos were uniquely equipped to build extensive temporary housing from shipping containers and later formocrete modules brought in by rail and sea.
But first, the ground needed to be cleared to put up even these rudimentary structures. Most of central Corp Zone had been destroyed. The wreckage was far too vast to move out of the area, so the survivors used bulldozers and jury-rigged main battle tanks (abandoned by both sides) to shove the debris into the Bay. Most of Night City's inner neighborhoods had already been razed to the ground in the ceaseless battles preceding the Fall of the Towers. Now, the wreckage became the fill the new mega-buildings and old cityscapes used to rise again and challenge the smog-filled skies. And the building keeps going on, despite gogangs, plagues, riots, and all those other inconveniences that are just part of the Time of the Red.
This ongoing rebuilding period has also cemented Night City's relationship to the outer world. Abandoned by President Kress and her "New" United States, Night City has no intention of ever yoking itself to that tottering governmental shibboleth again. Kress's successors are going to be in for a really long and ugly war if they want to take this particular Free Zone back into the fold; frack, they might even ask Arasaka for help if it comes to that. As for the European Theater, the Euros can go their own way just as long as they don't mess with Night City's particular path. Like a cyberfighter who's been hit, knocked down, and rises again with a scream of heavy metal rage, Night City has dreams. Dreams of becoming the biggest, baddest, most important city on the planet one day soon.
And it's a big dreamer.