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A closer look: Understanding tariffs and impact on farmers

SAVANNAH, Ga. (WSAV) - If you have forgotten the ins and outs of high school or college classes on trade, Dr. Richard McGrath has a quick refresher course.

"The simple idea of a tariff is that it's a tax on imports," said the economics professor at Georgia Southern University's Armstrong campus.

Imports are goods that come into the country.

"We import goods from China and we tax the imports, so we charge them 10 or 15 or 20 percent on the price of the product as it comes in the country," said McGrath. "That makes it more expensive for foreign firms to sell goods in the United States."

Who pays?

"The firm that imports the goods pays that tariff and passes the tariff on to consumers basically to keep their profit margin," said McGrath.  

He says that means you will see higher prices for a number of products. He also says in theory, there are reasons to impose or increase tariffs.

"It is supposed to give some advantage to domestic firms who make competing products but there are problems with whether or not that's accomplished very well," said McGrath. 

The professor says that we truly have world markets now and many companies even if headquartered in the U.S. use parts from overseas.

"So everything we manufacture here - some parts of that are imported," he told me. 

McGrath says in general, tariffs tend to start trade wars because countries retaliate against one another.  A good case to prove his point is American soybean farmers. 

"The soybean farmers get caught in the middle because we set tariffs on certain Chinese goods and the Chinese are going to retaliate and put tariffs on American goods," McGrath told me.  

As a result, American farmers are losing billions in soybean contracts from Chinese companies, companies that can buy soybeans cheaper from other countries.  

And the Trump Administration has proposed $14 billion in payments to American farmers who will lose money this year. 

In terms of economics, McGrath doesn't seem impressed with the plan.

"We started a trade war with China and they retaliated with tariffs on farm goods. So what's going to happen is instead of our farmers getting payments from selling soybeans to China, our farmers are going to get money from our government from our taxes to replace the money they could have gotten from China," said McGrath. "This doesn't sound like a great deal for the American taxpayers because we're subsidizing the farmers instead of them just being able to sell their goods to China." 

McGrath acknowledges there are legitimate trade issues with China but believes a better approach might be targeted negotiations about the specific problems, not tariffs on a long list of products.  

He says the tariffs are creating uncertainty for businesses, farmers and us.

"Ultimately, the American consumer is going to pay for the tariff," he said.

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