Tariffs and tax cuts: More than just South Carolina's auto industry at stake


South Carolina’s juggernaut auto industry is contributing up to $27 billion to the state annually, but the long-term impact of trade policy and the Tax Cut and Jobs Act (TCJA) may put that in jeopardy.

According to a study on the South Carolina Department of Commerce website, South Carolina is the No. 1 state in terms of export sales of vehicles and tires. The sector employs more than 60,000 workers, a third of them added since 2011.

Since BMW opened its factory there in 1994, two other luxury automakers, Mercedes-Benz and Volvo, have likewise launched operations within the state. They are joined by tire maker Bridgestone, parts manufacturer Magna and almost 400 other suppliers.

As an article on RollCall.com points out the so-called “multiplier effect” greatly enhances the impact one successful industry can have on a region’s economic health. The effect gauges how many secondary industries grow to support a primary industry. For example, autoworkers must also spend money on where they live, what they eat, what they wear, their own cars and so on. By one calculation mentioned in Roll Call’s article, 7.25 million jobs depend on the auto industry’s health.

So it’s no small problem when trade policies, such as the Trump administration’s tariffs on steel and aluminum, carry the potential to hamper auto industry growth.

As a piece on The Brookings Institution’s website declares, the ripple effect of tariffs on the wider economy has left “America’s local and state economic officials … asking how this latest trade policy shift will influence their own economies,” the site said.

The threat is not limited to tariffs. As William G. Gale, co-director of the Urban-Brookings Tax Policy Center, says, the administration’s vaunted Tax Cuts and Jobs Act could hamper the auto industry down the road. Gale said the TCJA would, at best, offer short-term growth.

“In the long run, I think more people worry about the increase in budget deficits, how that will crowd out capital and how that will make it more expensive to invest,” Gale said in an interview with Palmetto Business Daily.

In its assessment of the TCJA’s impact, the Congressional Budget Office predicted that there would be little, if any, net increase in income for most American households over the coming decade. Gale said it would likely create larger problems.

“The distribution of income will become more unequal, so there will be more income going to high income households and less to low income households,” Gale said. ”That could affect automobile demand, as well, depending on who’s buying which car.”

For automakers, the health of the wider economy, which could suffer long-term under new tariff policies and the TCJA, will be the biggest predictor of impact.

“What happens to the economy will be what happens to the auto industry,” Gale said. “I think [TCJA] was the wrong thing at the wrong time. The wrong thing because the economy was already doing quite well, and as John F. Kennedy said, the time to fix the roof is when the sun is shining.”

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Brookings Institution South Carolina Chamber of Commerce

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