In this second episode of our two-part series on trade and economics, Lauren continues her conversation with Dr. Anne Villamil, professor of economics at the University of Iowa Tippie College of Business. Dr. Villamil breaks down what tariffs really mean, such as who pays for them, how they influence industries like manufacturing and agriculture, and why trade wars can have lasting effects on local communities.

The views and opinions expressed in this podcast are solely those of the student hosts, guests, and contributors, and do not necessarily reflect the views or opinions of the University of Iowa or the College of Public Health.

Lauren Lavin:

Hello everybody, and welcome back to Plugged Into Public Health. I’m Lauren Lavin, and if it’s your first time with us, welcome. We’re a student run podcast that explores major issues in public health and how they connect to the world around us. Today we’re back with part two of our conversation with Dr. Anne Villamil, Professor of Economics in the Tippie College of Business at the University of Iowa. In part one, Dr. Villamil helped us understand how international trade policy developed, how tariffs emerge, and how US trade institutions operate. So if you haven’t listened to that episode, be sure to listen to that and then come back to this one and catch the second half. In this second episode, we dig deeper into what tariffs mean in practice, how they affect businesses, consumers, and communities, especially here in Iowa and across the country as well. Dr. Villamil explains why some industries benefit while others struggle, what trade deficits actually represent, and how global relationships with partners like China shape the US economy.

So let’s get plugged into public health. Plugged into Public Health is produced and edited by the students of the University of Iowa College of Public Health, and the views and opinions expressed in this podcast are solely those of the student hosts, guests, and contributors. They do not necessarily reflect the views or opinions at the University of Iowa or the College of Public Health.

My second follow-up to all of this, and you kind of talked about this with this comparative advantage, is that countries specialize in what they’re good at or can produce effectively, and as a result, create trade dynamics. And part of the source justification for some of these tariffs were that we had really large trade deficits with certain countries, but, and you kind of touched on this, that’s probably not a reason to institute a tariff, at least traditionally. So could you explain just what a trade deficit is and whether that means we should invoke tariffs?

Anne Villamil:

Yes. So a trade deficit is just the difference between exports that come into the United States and imports that we send abroad. So if you are importing more than you are exporting, so it’s a negative number, that’s called a trade deficit. It goes the other way and it’s a positive number, that is you’re exporting more than you are importing. Then you have what’s known as a trade surplus. So let me come back to my example of Canada is that if we look at goods flows, there is a small trade deficit. But if you look at the broader measure of goods and services, the US has a trade surplus. So it is extremely curious that we are having this problem with Canada, again, a trade treaty that was negotiated under Trump won as recently as 2018, and the fact that on a broader measure, we in fact had a trade surplus. So it is going to be interesting to see as these things work their way through the court, how this is going to look.

Lauren Lavin:

Yeah. And like you pointed out, we just need time. Like you said, the tariffs went into effect or some of them in April, and we’re only in October at the moment of recording right now, and that’s only six months, and there’s kind of been that waffling back and forth. But some people have said, “Well, the market is still going up. So if these tariffs were going to be really bad, wouldn’t we see that in the market?” Do you have any response to that?

Anne Villamil:

Great question. So the reason that the market seems to be high is because we are having a tremendous amount of investment around AI and AI infrastructure. So particularly if you look at the S&P 500 index, there are seven or eight firms who are tech firms that are a big reason why the S&P is so high. And there is a lot of concern about that right now that how is AI going to turn out? And the honest answer is we don’t know. We have had waves of innovation before, computers, the internet, many things. This is a big one. Going back historically, electrification, the industrial revolution. There are times in history, and generally they are good times, when there are big technological innovations, and it is simply not possible to predict now with precision how exactly this is going to shake out.

So I’ve even heard from some Iowa people who are, businesses that are involved in building some of the data centers here, and yes, we’re building, and yes we’ve had bottlenecks, and there’s a lot of capital around it, so we’ve been passing these costs on, but we get smarter and we learn that we have a shortage of electricians. So how can we… Here was a simple example. Electricians do specialized technical work and we need more of them to do these things. And they were moving things from point A to point B. So what do you do? You hire teams to take care of that less specialized work. And this is very much this idea of the comparative advantage. Let them do what they’re good at. Let them specialize. This happens every single day, and it is the basis for trade, and it allows you to produce more.

So some of that is certainly going to happen, so the market is higher. A big effect of that is AI-type things in the S&P. And even if you look at even imports that we’re doing, we are of course producing some chips like Nvidia, but we’re also importing them. And that’s a lot of that investment. So the economic pie, GDP consists of consumption. That’s about two-thirds of the pie. That’s you and I going out and buying and enjoying things. Investment, and there’s a big increase in investment, and that’s a good thing. Assuming this pays off, government spending, which has been cut a bit with DOGE and all of these types of things, and then net exports.

So that is what GDP is. So investment is up because of these AI effects, but consumption is up for the top of the income distribution. And I mean the top one half of 1% and then the top 20%. Why? Because the market is up and there is something that economists call a wealth effect. When my stock portfolio goes up, I feel wealthier, and so I feel more confident consuming. If the market were to retrench, that wealth effect would go in the other direction.

Lauren Lavin:

I’ve seen a lot about an AI bubble and the Magnificent Seven and how some of them are just investing into each other, and it’s just driving the market up. Another point that I’ve also seen is that the market, especially the S&P, it is a measure of some of the wealthiest people and companies, and that there are other indicators that we could look at if we went to look at the health of middle income Americans. Would that be the consumer price index, or do you have other measures that you’d see?

Anne Villamil:

That’s what I was trying to say about consumption. In terms of income, the top roughly one half of 1% of people have a lot of money in the stock market, and the next, the 80th percentile to the 100% of the top of the income distribution also have a lot of money in the market. And so why don’t people in the one percentile, meaning lower income, why don’t they have money in the market? Because they’re living hand to mouth. It is higher income people who save because they can. So no, you see that directly in income data.

Lauren Lavin:

Got it.

Anne Villamil:

And the US, inequality has been increasing in the United States. In other words, people with higher incomes have been enjoying yet higher income and people with lower incomes have been struggling more. And if there are benefit cuts, they will struggle even more.

Lauren Lavin:

Now I remember it was an article from the New York Times saying that the Hamburger Helper sales have risen by 15% since the beginning of the year, and they were using that as an indicator that lower income people were maybe not doing as well.

Anne Villamil:

Yeah, and so people substitute, and that’s how economics works. And it’s a normal thing to do, and it’s an effective thing to do. If the price of one thing goes up, I substitute something cheaper. And that works with tariffs as well. That’s why it takes some time. So this idea of why haven’t we seen it yet? Because people are doing exactly what they always do. When prices change, they substitute. And that works for a while, but eventually we see more fundamental changes.

Lauren Lavin:

Yeah. So bringing it back to Iowa, and you’ve covered some of this, but are there particular sectors or regions in Iowa that have felt the impact more directly?

Anne Villamil:

Certainly manufacturing, and manufacturing, if it’s done in a small rural town, if a factory closes, that’s not just bad for the people who’ve lost their jobs. It’s bad for the restaurant. It’s bad for the bowling alley. These are called multiplier effects in economics. So those are difficult effects in terms of regionally. Finance and insurance has been declining, so that has accounted for so called good jobs in Des Moines because those are higher income jobs. And then agricultural, of course, by its nature is going to be more rural. And again, that multiplier effect is important because you might have farms, but there is a movie theater, there are some restaurants, things like that. And when those firms have difficulty, there’s going to be a knock-on effect. That’s what a multiplier is.

Lauren Lavin:

Right. And is it true that Iowa in particular sells a lot of crop soybeans to China? And so then when we create friction through tariff policy, do they do something retributionally to us?

Anne Villamil:

Absolutely. And that’s what’s really interesting. So great example, glad you brought up soybeans, because it is a crop that is very important to Iowa and Illinois as well where I used to live. And so let’s go back to tariffs. So the tariffs have two parts. There are imports and exports. Tariffs are taxes, and taxes that are put on exporters like China. And we say to China, “You have a tax of 60%, 100%, 139%,” just we hear all of these numbers, and some countries have stood down and said, “Okay, let’s look at what’s really going on here.” These numbers are released on social media, and then a few days or no more than a few weeks later, there’s a discussion of, oh, we’re going to have negotiations, so I’m pausing the tariffs. But as this goes on, after some point, China says, “Okay, if you are actually going to put those tariffs on us, we are going to respond.”

And China did this in 2018. It said to the US, “We are going to stop buying your soybeans.” And what did China do? They bought them largely from Brazil in 2018, and that hurt Iowa and American, but Iowa farmers because their export market literally dried up. And so there was trade relief in 2018. So after this repeated brinkmanship, because this is a negotiation, right? So US puts a tariff and then China has waited, but eventually gets to the point it did it in 2018 and it’s doing it now where it says, “Okay, we are going to retaliate.” That’s the word that’s used in trade. You imposed a tariff on us. We are going to retaliate against you. We are not going to buy your soybeans. And this is back to this word we used before. What are we going to do? What all economic agents do. We’re going to substitute.

Instead of Iowa soybean, we are going to get soybeans from Brazil or Argentina because they are big agricultural economies as well, and that hurts Iowa farmers. So before the shutdown, which is another thing which is not helpful right now, there were discussions of having trade assistance for Iowa farmers, but with the government shut down, they’re not able to implement it. So that’s been put on hold, but retaliation is a very standard part of a trade war. And it’s what makes trade wars so destructive. You’re raising these frictions, the tariffs raise prices, and that’s a problem, but then you are reorganizing trade flows. So I’m sure the farmers who were harmed in 2018, they could switch to another crop over time. But right now, farmers that thought they had contracts with China for soybeans and China says, “No, we’re not buying,” are stuck. And seeing this uncertainty in 2017 and now 2025, the geopolitical issue is going to be, is the United States a reliable trading partner and do I want to trade with someone else? And that will hurt US farmers, manufacturers, consumers, and so that is very concerning.

Lauren Lavin:

Yeah. And what I’m thinking about, as you said all this, so if we make changes, you make changes to your manufacturing process, you switch your crops or manufacturers raise prices that get passed down to consumers, what happens if a new administration were to come in and change the tariff policy. Do they bring prices back down, or do you switch back? And what does that look like?

Anne Villamil:

So they certainly could change the policy. What is interesting though is under the Trump one administration, the president raised tariffs on China, and under the Biden administration, Biden kept those increases. Why? Because there are real problems with China. So we do need to solve those problems, but this is kind of certainly an expensive and potentially a damaging way to do it. As someone who worked for USTR, first my preferred way would be negotiate. Let’s get people down around a negotiating table. The second thing I would say is that the US and Europe collectively, Europe collectively is slightly bigger than the United States. If Europe and the United States were sitting together at a negotiating table with China and cooperating, they could say to China, “Look, if you want to continue to trade with us, then here is this laundry list of very real problems. And we want to talk to you about ways to solve these problems and to be sure that the solutions are implemented.” That would be a more effective solution.

Lauren Lavin:

So you’re not saying that trade with China should be free, that there are problems, but tariffs might not be the most effective way to alleviate the concerns?

Anne Villamil:

That is exactly what I’m saying. This is not an imaginary problem. This is a real problem with China.

Lauren Lavin:

What problems are you referencing with China in specific?

Anne Villamil:

Well, a multitude of standard problems not giving us complete access to their markets the way we do. When we do business in China, we have to do joint ventures. If you talk to US manufacturers, including John Deere, they have been very concerned about industrial espionage. It is, of course, very much easier to have a joint venture with John Deere and effectively steal technology. I mean, this kind of stuff, this is very real. So many of these are not made up problems and they need to be addressed. Theft of intellectual property is huge. There are always standard things like health and safety, environmental standards. Those have to be negotiated. So these are very… And then just simple trade barriers designed to, they’re called non-tariff trade barriers. “Oh yes, I will let you come into my country, but I’m going to put these restrictions on to make it very expensive for you to do business so you’re not going to be successful.” These are things that all countries do.

And this is what I meant at the beginning, that people and countries lie and cheat, and you can write treaties, but you have to enforce them. But again, negotiation and cooperation between the US and Europe, which are both big and have big markets that China and other countries want access to, we have a lot of common cause and therefore the ability to say, “We will give you access, but here’s the list of particulars.”

Lauren Lavin:

Oh, this has all been so great. So I’m trying to wind it down now, but how does the US tariff policies right now fit into the bigger picture of international trade and global relationships?

Anne Villamil:

So there was a big expansion of international trade, and there have been pullbacks globally. Brexit. What was Brexit about? Brexit was part of the free trade union in Europe, and it said, “We don’t want to do this anymore.” And so they wanted to negotiate certain things, and Europe essentially told them you’re either in or out, and they chose to get out, and it has hurt their economy. But there truly are a lot of problems here. All countries need to control their borders, so that’s important, and getting agreements on that that work. Right now, there are a lot of fiscal problems. Most countries have fiscal deficits. Why? We all did a lot of spending during COVID, and now there’s a lot of debt, and we have to pay it down. So countries are concerned about their workers having jobs. And particularly when you think about Britain, certain cultural things that countries feel make them who they are.

The US is different in many ways in the sense that it’s quite culturally and religiously diverse, but there are other countries that have more of a sense of it is important in Britain to have a monarchy. It is important in Japan to have particularly ethnic and religious identities, things of that nature. And so those are things that have come up and the pendulum has been swinging.

Lauren Lavin:

Yeah. So then as we wrap this up, if you could leave listeners with one key takeaway about tariffs and trade policy, what would it be?

Anne Villamil:

So I really hope there’s very, very earnestly, having been in the policy world, the United States and all countries need to do the hard policy work to devise and implement policies. And that is true for trade. That is true for healthcare. That is true for the shutdown and many other policies, particularly with trade, people’s livelihoods. And in some cases like healthcare, their lives depend on these policies. So I think that’s the thought. We need our politicians in a democracy to do the hard policy work of coming up with the policies and then implementing them.

Lauren Lavin:

Yeah. So then as individuals, is our job then to elect officials that will do this work?

Anne Villamil:

Yes. I mean, we all need to participate in our very messy, but very important democracy.

Lauren Lavin:

Well, Dr. Villamil, this has been a great conversation. I’ve been nerding out the whole time. So I really appreciate you taking time to chat with us. I know that so many of our listeners are going to be interested in this topic, and I think you broke it down in ways that will make it really very digestible for all of us. So thank you for being here with me today.

Anne Villamil:

Thank you for having me. All right. Bye, Lauren. Great job. I’ve enjoyed this.

Lauren Lavin:

Thank you.

That’s it for part two of our conversation with Dr. Anne Villamil. Today we learned how terrorists ripple through our economy from Iowa farms and factories to global trade negotiations. We also explored how economic policy affects inequality, investment, and the long-term stability of international relationships. Dr. Villamil reminded us that good policy takes hard work, and that as citizens, we each play a role in shaping it by staying informed and engaged. This episode is hosted and written by Lauren Lavin and edited produced by Lauren Lavin.

You can learn more about the University of Iowa College of Public Health on Facebook. Our podcast is available on Spotify, Apple Podcasts, and SoundCloud. If you enjoyed this episode, please share it with your colleagues, friends, or anyone interested in public health. Have a suggestion for a team? You can reach us at cph-gradinvestor@uiowa.edu. This episode is brought to you by the University of Iowa College of Public Health. Until next week. Stay healthy, stay curious, and take care.