The impact of tariffs on South Carolina’s economy was discussed Tuesday at the University of South Carolina’s 38th annual Economic Outlook Conference.
“We’ve got a strong presence of international business that’s an important part of our economy,” Darla Moore School of Business research division director Doug Woodward said. “So, when we have trade restrictions and protectionism like this, it’s something that is going to affect us in South Carolina and already has.”
Woodward gave a presentation at the conference called Tariffs and Trade Wars Impact on South Carolina and United States Outlook.
“2019 might be a better year than 2018 in terms of trade,” he said. “A lot of the disputes, particularly between China and Mexico, look like they may be resolved. We don’t know this for sure. This is political. It’s not economic. But there’s been some recent announcements that make it more encouraging.”
Woodward said South Carolina’s international business will continue to grow the economy.
“We can continue exporting and I think Volvo, too, will see there is more potential as an export platform from South Carolina using our port and accessing the Chinese market, which we want to do, because that is the fastest-growing major market in the world and if we export to them, we’re going to benefit from that,” he said. Volvo has said it will split assembly of its new S60 model between a new Ridgeville plant and China.
“South Carolina’s economy remains strong, but we are in a more volatile market environment than we were last year at this time,” Business Research Economist Joseph Von Nessen said.
He said the volatility is largely driven by the introduction of new tariffs in the automotive sector and is fueled by rising interest rates that put upward pressure on housing costs.
“At the end of the day, a tariff is simply a tax,” he said. “And in this case, it is a tax that is likely to increase the final sales price of vehicles produced in South Carolina. This price increase, in turn, can have a negative impact on the demand for these vehicles.”
Disruptions to the automotive industry can have a disproportionately large impact on South Carolina. The domino effect starts with manufacturers and continues along the automotive supply chain statewide.
The state’s automotive sector is responsible for three times more jobs than the automotive companies themselves provide, according to Von Nessen.
“For every ten jobs that are created or sustained by the auto cluster in South Carolina, we see another 27 jobs created elsewhere in the state for a total of 37,” he said. “So for every 10 jobs that are created directly, we see a total of 37 jobs created in the state.”
Despite the negative effects of tariffs on the automotive industry, Woodward and Von Nessen anticipate that most South Carolina industrial sectors will see steady gains in 2019. They say the growth could especially be true in wholesale and retail trade, health care, professional services and tourism. Due to predicted job growth in those sectors, the economists forecast a small drop in the state’s unemployment rate to 3.1 percent from the current rate of 3.3 percent.
“The bottom line is that we are experiencing an economic tug-of-war,” Von Nessen said. “Steady job and income gains, coupled with lower gas prices, are fueling higher demand. But some of these gains are offset by rising interest rates and new tariffs that put upward pressure on the prices of consumer goods. We don’t know whether 2019 will be a good year or a great year, but it’s not likely to be bad.”