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Health Affairs This Week places listeners at the center of health policy’s proverbial water cooler. Join editors from Health Affairs, the leading journal of health policy research, and special guests as they discuss this week’s most pressing health policy news. All in 15 minutes or less.
Hello and welcome to Health Affairs This Week. I'm your host, Jeff Byers. Hello. Hello. We're recording on 04/10/2025.
Jeff Byers:Heads up. Health affairs released a theme issue on food, nutrition, and health recently. I hope you are enjoying the special series from my colleagues, Ellen Bayer and Jessica Bylander. The last podcast episode on that four part series will be published next Wednesday. On April 29, we have a related lunch and learn event for the theme issue.
Jeff Byers:It's a conversation with Marion Nestle discussing the evolution of US food and nutrition policy. Check the show notes, to join this free virtual event. Also, our next insider event is April 23 with Brady Post on-site Neutral Payments, and we're working on some events, that we'll be able to announce pretty shortly. Today, I'm joined by David Simon. David is an associate professor of economics at the University of Connecticut, and he is the author of the Health Affairs Insider Newsletter Economic Intersections.
Jeff Byers:In this exclusive premium newsletter that you can only get when you sign up for Health Affairs Insider, David explores the intersection of economics and health care. And with that spirit in mind, today we are going to talk about tariffs. David, welcome to the program.
David Simon:Hi. Thanks, Jeff. Thanks for having me on.
Jeff Byers:Just real quick. Where are you in the in the NCAA double a tournament? Are we done with that? Let's do a sports recap. Did did you all win?
David Simon:I think we won. I'm not I'm not a sports person. So, yeah, go Huskies. I believe we had our big win and and, yeah, won won won the national.
Jeff Byers:To the task at hand, thanks for thanks for joining SportsCast for a second there. On April 2, the Trump administration unveiled a plan for reciprocal tariffs. So we like to think that everyone every episode could be someone's first episode with this. Maybe they're steeped in health policy. Maybe they're not.
Jeff Byers:So for those that might be unaware, simply just going way back, what is a tariff?
David Simon:Yeah. All a tariff is is a is a special type of tax. It's a tax on an imported good. So whoever, exporting that good from that country would would would have to pay that tax. So the what what we think of the actual incidence of the tax, whether it gets passed through prices or not, is less clear.
David Simon:So
Jeff Byers:And so we've probably heard the word tariff a lot in the news recently. From your perspective, what's the big news from this? They called it Liberation Day. Is that right?
David Simon:Yeah. So I think there were a couple of things that with all the buildup that really jumped out on that day. And so the first one was, how the tariff was applied across countries. Well, so first of all, it was just more widespread and larger than anyone expected, at least until the recent turnaround. And then, associated with that, it is when we when we think about this, it seemed like the administration was taxing based on the amount of the trade deficit, which is not in fact a reciprocal to the tariffs or even to the non tariff trade barriers that the other countries were applying.
David Simon:But it had more to do with who just we tended to be run a deficit with. And and I don't think that was expected, and that's not typically how we think about trade policy, and that was probably the biggest surprise. I would think the other major big thing to come out of this was how the bond markets enter ended up reacting where we had a sell off of bonds, and that was probably an unexpected consequence of this as well that that I think ended up being quite important. So those were the two big ones.
Jeff Byers:Yeah. And so you you alluded to this. Again, we're recording on April 10. So markets did drop in reaction, but you mentioned a comeback. So, like, you know, can you give us an an overlay of just, like, what's happened so far in the markets?
David Simon:Yesterday was it yesterday? Yes. It was just yesterday. President Trump, announced a change to the tariff policy, which was originally in the sort of wide base deficit based, tax, and he reduced it to a 10% tax on all countries except for the, China, I think, was the main one, who he'd saw as as having, responded with their own tariffs, which now has a quite high tax. And that was so I think that's now at, like, 120 or around there.
David Simon:At first, we saw a relief in the markets because I think it was so broad based that that in of itself seemed to have a lot of disruptions. But then and so there was a there was a spike up, though now the market seemed to be trending back down. I think as they start to price in what the effect of these tariffs could be, how it might affect growth because the tariffs are even without, even with the pullback, tariffs are quite high still, especially on China. They're they're well above anything we've seen in recent history.
Jeff Byers:Yeah. So I don't wanna, start making predictions about what's gonna happen because, a, we probably don't really know what's gonna happen, and by the time this episode is released tomorrow, information may have changed drastically. So but based on that, as a concept, how do tariffs affect costs and prices to both business consumers in The US?
David Simon:Yeah. Yeah. That's a great question. So conceptually, we think of tariffs, as I mentioned, was a tax. And so one of the key things that we care about the tax would be what we what economists call the incidence of the tax.
David Simon:That's essentially which side of the market pays the tax. So in the case of tariffs, that would be two people effectively have to pay for the tax. It's either those who are buying, which would be The US in this case, or those who are producing the goods and selling it, which would be, China or another country who implemented that tariff. And if you look at the recent sort of research on on China and previous tariffs that have been levied, recently by The US, as well as just sort of the general sort of what we see with tariffs in general, that it seems like most of get that gets passed on to the country that's purchasing the good, so about a % pass through. So most of the tax gets passed through.
David Simon:Now it gets a little bit more complicated in that once you have that, then The US companies who are purchasing the goods can choose to either they can either choose to pay the tax. And so this would maybe like a hospital who's importing a medical device. They can eat it out of their profits or they can cut back production or they can pass down the full amount of the tax or some amount of the tax onto the consumers or in this case, people who are using hospital services in that example.
Jeff Byers:So, you know, can you give me an example of what we've seen in the past or, like, how how might that play out?
David Simon:Yeah. Absolutely. So, the best research we have on this recently would I think it's a 2023 paper that looked at how tariffs from the first Trump administration, where he he implemented a number of tariffs, on China, how those ended up, affecting, prices and and who paid them. I think like like I sort of alluded to, almost a % of the tariffs got passed on to US companies. And then the question becomes how those companies responded.
David Simon:So depending on the industry, some of that money got passed on directly to consumers. In some cases, lot of it. In other cases, the companies paid it and they can end up either eating down of their profits or possibly, and what we would think in the longer term, that would be cutting back production, maybe producing less firing workers and that kind of thing.
Jeff Byers:You know, looking back at that research, I want to ask about the healthcare industry portion of it. Was there any information about how healthcare companies responded?
David Simon:They didn't specifically look at healthcare. They did look at electronics, which is probably close to what would matter for medical devices. I should say the the other big one from China would be pharmaceuticals, but those have so far been exempt from tariffs, even the recent ones. But but if you look at electronic devices, most of that did not get passed through to consumers, but got eaten by the producers. And again, I don't think we know yet exactly how they responded, whether that was just purely out of profits or what you might think more of is that's going to you know, they're not gonna expand as much or they might have to do layoffs or something like that.
David Simon:They have to cut costs somewhere else. That's that's their option. Right? You either pay consumers, you either out of profits, you cut costs somewhere else.
Jeff Byers:Well, as reported by Axios, medical device makers and hospitals were pressing to gain exemptions from the recently announced tariffs. It looks like this did not happen. So looking at the healthcare focus and given what you just said, generally, how may tariffs as a concept affect healthcare?
David Simon:So I think as you're saying, the big thing here are the prices. And those prices, we think in the long run, at least over time will be passed down to consumers. And and and I think a key thing to remember here is that even if companies shift, to purchasing from US or from places with a lower tariff, importing goods from there or or or doing US manufactured goods, the prices still go up. And that's because these other companies, they have more demand on them and limited supply, limited resources to provide, and that's gonna push up the prices of the domestic produced goods as well. The other thing to really think about, that I think there's concerns are is that, when you think about pharmaceuticals or especially with medical device manufacturing, these have extremely complicated supply chains.
David Simon:I don't think we even necessarily fully understand how complicated these supply chains are. And and some of these inputs are done on very low profit margins. So so some of these supply chain providers who are making an input into the device, which is also imported and might be two or three steps down up on supply from where the device is manufactured. The concern is that they could be pushed out of business. Their profit margins can be very low.
David Simon:And it can be sometimes the case is there's just one or two of these manufacturers who are making these devices. That can really end up causing in the healthcare sector and other sectors as well, sharp limitations on supply backup. It can disrupt the supply chain similar to what So there's a great article by Ben Golub, who's a network economist who talks more about this. He said at the extreme end, it could be as bad as the COVID disruptions or even worse. So if you think about some of the problems that the health care industry had in COVID, if if these tariffs end up being long lasting and if they end up being large, then then you could really put under some producers and have supply chains start to back up.
Jeff Byers:So Yeah. That would that seems to me like that would be a very, very extreme case though.
David Simon:Yeah. I think yes. I think the issue is is that these global markets have been so integrated and are so complex that no one really knows. I mean, I think Sure. Sure.
David Simon:Someone's steering this or that someone it is not the case. So I think like a car manufacturer like Toyota or something, they've if if they look at the number of inputs that they're bringing in from other places, you're talking about a couple hundred thousand different inputs from different places. So that's the I was saying that I think that's what part of what markets are are reacting to is how this is.
Jeff Byers:Yep. Yeah. Yeah. Because when you think about, like, from a hospital perspective, there's so many potential medical devices from X-ray machines to CT scans to stethoscope as medical device, but not exactly what we're talking about here. But, you know, those those kind of things when you're talking about supply chain, there's, like, big ticket devices or, pieces of equipment items as well as, yeah, just like your day to day, like Band Aids, swabs.
Jeff Byers:So there's a lot of potential to be seen about like what how this actually would shake out in a provider setting. As we wrap up, how could, and we kind of touched on this already, but how could healthcare spending utilization change in the face of these economic changes? And what might you say is to I'll just stop right there. In the face of these economic changes.
David Simon:Yeah. I mean, I think the thing to to realize is that this is done to reshor, and it's gonna be really slow and expensive to reshor some of these producing these items that like these medical devices. That's if it's even possible. It might be that these global supplies are just too integrated at this point. And so you basically there's two things that can happen.
David Simon:You have and and I think it is what we talked about. Prices go up and that ends up increasing costs or there's shortages in the intervening time.
Jeff Byers:Do you think this is something that insurers want to take note of before patients or patients before insurers? Do you have any insights onto that?
David Simon:Yeah. I mean, you know, if it's a shortage, I don't know if the insurer sure. You know, then in that case, that kind of tempers down demand in a way that doesn't affect the consumers. But to the degree that this is just upping prices, yeah. I mean, this is gonna be out of the pockets of insurers.
David Simon:And so they if I were them, I would they need to start pricing this in.
Jeff Byers:I mean, it it will be, interesting to continue the tracking of research on health care spending and, utilization, going forward. David Simon, is there anything we didn't talk about that if you were in my shoes that I should have asked you, you know, while we have you?
David Simon:Let's see here. I think we got the major points that I, you know, wanted to cover. Yeah. I think I think the last thing to to know is that this is just really unprecedented waters, both in terms of the extent of the tariffs and how they're being done. And that's what you're really seeing markets react to is that we don't know.
David Simon:We know it's gonna hurt, but we don't we don't really know how bad.
Jeff Byers:Well, may you live in interesting times. I like cold times. David Simon, thank you for joining us on Health Affairs this week. If you, the listener, enjoyed, David's insights and want to hear more from him, please sign up for Health Affairs Insider, where he, writes our economic intersections newsletter. And if you enjoyed this episode, this free episode, pass it on to a friend, maybe the day trader in your life, and we will see you next week.
Jeff Byers:Thanks all.