South Carolina’s economy is deeply dependent on international trade – 20 percent of the state’s jobs depend on it – and the vast majority of the state’s $32 billion of exports originated from small- and medium-sized businesses.
A new proposal from presidential candidate Donald Trump to place a 60% tariff on imports from China – in addition to his proposal for an across-the-board 10% tariff on friends and foes alike – would put those jobs and small businesses in jeopardy.
Instead of protectionist policies that hurt South Carolina’s manufacturers, farmers, exporters, and everyday consumers, presidential candidates should pursue improvements to the tax code that boost investment incentives and competitive standing.
If we look at history, South Carolina is no stranger to the economic harms that follow government restrictions on trade. An excessively high tariff implemented in 1828, nicknamed the Tariff of Abominations, caused the average tariff to spike above 60% and affected southern exporters and consumers.
These tax hikes led to political and economic instability – causing income losses for the agrarian Midwest and South and income gains for the North. But in the nearly two centuries since, it seems politicians still have not learned their economic lesson.
In his first term in office, Trump instigated a trade war with China that led to the average tariff rate on imports of Chinese goods climbing from about 3% to 12%. Two common arguments for his policy are that higher tariffs are needed to address China’s misbehavior and help U.S. manufacturers.
On the first, China has and continues to display bad behavior, from increasing authoritarianism, market interventions, and its industrial policy to human rights abuses and intellectual property theft. But a trade war fueled by higher taxes on what Americans buy from China does nothing to directly address China’s problematic behaviors. Instead, it risks upending a global economic system that has delivered massive gains (and yes, some concentrated pains) to the U.S. economy.
When it comes to the latter, a host of evidence finds the trade war led to higher taxes and prices for Americans and lost income for U.S. businesses and consumers. The tariffs did not boost U.S. manufacturing – they hurt it by hiking the cost of doing business in the U.S.
We don’t need to look far to see proof. Element Electronics, a manufacturing company in Winnsboro, S.C., was planning to lay off more than 100 workers due to higher costs from the tariffs. It wasn’t until the company petitioned for and received an exclusion from the tariffs that it could resume operations.
While some companies were lucky (or connected) enough to get exclusions, others were not spared the pain of the trade war. The U.S. Department of Agriculture estimates South Carolina lost out on more than $47 million of agricultural exports alone due to China’s retaliatory measures. The tariffs also put pressure on South Carolina automakers, creating headwinds for the industry across the state.
If the goal is to boost U.S. manufacturing, higher taxes on the goods U.S. firms use in their production processes and government shelter from the forces of competition is not the answer. Instead, policymakers should cut taxes on domestic investment by allowing immediate deductions for machinery equipment, research and development, and factories. For instance, businesses in China receive “super deductions” for their research and development costs, while businesses in the U.S. can only deduct a small portion of their R&D in a given year.
Prior to the trade war, China was the Palmetto State’s largest export destination, purchasing $5.6 billion of goods in 2018. In 2022, China’s purchases amounted to $3.8 billion, and it was the third-largest export destination.
Studies confirm again and again that higher tariffs hurt U.S. businesses and jobs on net, but they also confirm that better tax policy for investment boosts U.S. businesses and jobs.
If Trump quintupled down on his China trade war and ratcheted up tariffs on the rest of the world, too, South Carolina’s losses would be immense. The more than 580,000 South Carolinians whose jobs depend on international trade should take note of what’s at stake.
