Container ships at Wando Welch Terminal (copy)

South Carolina exports have decreased in 2018 for the first time in years because of higher trade tariffs, according to University of South Carolina research. File/Provided

COLUMBIA — While South Carolina's economy remains fundamentally strong, experts fear ongoing international trade disputes are holding the state back.

But they also have found renewed hope about overcoming them.

The rise in tariffs led to South Carolina's exports decreasing in 2018 for the first time in years, according to University of South Carolina research economist Joseph Von Nessen and research director Doug Woodward, and have continued to create uncertainty in the market.

"We've always been a state that has benefited from international trade. We've got a strong presence of international businesses that everybody knows about that's an important part of our economy," Woodward said. "So when we have trade restrictions and protections like this, it's something that's going to affect us in South Carolina and already has."

Despite the headwinds, Woodward predicted at an annual economic outlook conference Tuesday that 2019 would be a better year than 2018 on the trade front.

On top of already historically strong employment figures, the state could add an additional 6,000 jobs per year if the tariffs are removed, Von Nessen said.

"A lot of the disputes, particularly between China and Mexico, look like they may be resolved," Woodward said. "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 that 2019 will get us back on track so that we won't see further downturn in our international businesses and our exports."

Those recent announcements include the signing of a new trade deal to replace the North American Free Trade Agreement and a cease-fire in the trade war between the U.S. and China. 

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Economic outlook

University of South Carolina economists Joseph Von Nessen (left) and Doug Woodward lay out the state's economic outlook for 2019 at a news conference Tuesday. Jamie Lovegrove/Staff

In that sense, Woodward said, the Trump administration's tariffs are having the intended effect of forcing other countries to the renegotiating table.

"The U.S. is the most lucrative market in the world and people want to access that, and we're finally taking advantage of that," Woodward said. "In the past, we haven't done what China has done. We haven't said, 'If you want to access our market, here are the rules that you've got to play by.' We had a more laissez-faire attitude. We don't have that anymore."

The new U.S. Mexico Canada Agreement — or USMCA — would still need the approval of the legislatures in all three countries. Some terms of the deal may be particularly beneficial to South Carolina, Woodward said, like forcing automotive manufacturers based in Mexico to increase wages and requiring manufacturers to source more locally.

If Congress refuses to approve the new USMCA deal, Trump recently threatened to withdraw the U.S. from NAFTA anyway and go back to the pre-NAFTA order, which he argues "worked very well."

For South Carolina, economists say that could be the worst-case scenario because of the disruption it would cause for businesses.

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"Companies have to make long-term decisions about where to locate their production," Woodward said. "If we're constantly changing, moving from one agreement to another one and the rules are always upset, I think that would be the big problem. It creates too much uncertainty and has a chilling effect on investment."

In a scenario he described as an "economic tug of war," Von Nessen said the trade difficulties have in part been offset by steady job gains, lower gas prices and the tax cut package that passed through Congress last year. 

"The aggregate effect here has been more disposable income, more consumer spending, and that's benefited both retail trade and tourism sectors in South Carolina," Von Nessen said.

Charleston remains the fastest-growing region in South Carolina, Von Nessen said, with the unemployment rate dipping as low as 2.8 percent. He attributes that to a diverse local economy, with increased industrial manufacturing, professional services and the tourism sector all performing well.

"Charleston has the right mix, the right ingredients to really take advantage of the economic growth that the state has seen, so it has consistently led the way," Von Nessen said, adding that the harbor deepening project could further boost the local economy.

Other areas of the state, particularly rural communities, have not seen as much benefit from the state's growth in recent years.

Economists are hopeful that dynamic could change in future years, in part due to a new "opportunity zones" program that U.S. Sen. Tim Scott, R-S.C., got included in the tax overhaul legislation last year, which encourages businesses to invest in struggling areas.

"This has been a story of the last 10 years of metropolitan growth, particularly in certain areas of South Carolina, where others have been lagging behind," Woodward said. "It's going to take a strong incentive to change the mindset of investors to make the commitment and take the risk to invest in these areas."

Follow Jamie Lovegrove on Twitter @jslovegrove.

Jamie Lovegrove is a political reporter covering the South Carolina statehouse and congressional delegation. He previously covered Texas politics in Washington for The Dallas Morning News and in Austin for the Texas Tribune.