♪ opening music ♪ Welcome to "This Week in South Carolina."

I'm Gavin Jackson.

This week, the U.S. trade war led by President Donald Trump went into full effect with tariffs and reciprocal tariffs and then was paused somewhat.

To get a better understanding of all this I'm joined by Dr. Joey Von Nessen, and he's a research economist at the Darla Moore School of Business at the University of South Carolina.

Joey, welcome back.

Dr. Joey Von Nessen> Thank you.

Gavin, great to be here.

Gavin Jackson> We are in some tricky times right now, and you're always a steady hand to help us understand this, Joey.

So, but the last time we had you on was the end of 2024.

We were talking about the economic outlook for 2025 and that you developed and similar folks worked on at U.S.C.

and we talked about tariffs, and there were a lot of unknowns at that time, and it seems like there's still a lot of unknowns, despite what has happened over the past few days in the United States.

So how would you sum up what we've seen the Trump administration do with those tariffs, the retaliatory tariffs, and then this pause after this historic stock market rally, after seeing some 10 trillion dollars worth of value in the markets disappear and then somewhat get clawed back.

Well, I think the summary is one word uncertainty.

And that is what has been the new theme for 2025.

And the back and forth on these tariffs have contributed to that uncertainty and have been the leading cause.

And the problem with uncertainty is that it breeds paralysis.

That's a phrase we like to use.

Uncertainty breeds paralysis, particularly in the business community, because when they don't know what the market environment is going to be, when they don't know what their cost structure is going to look like, because they may be facing tariffs or potentially retaliatory tariffs, then they have challenges when planning investments, which are usually years in the making, particularly in manufacturing, where they're looking out three, four, sometimes even five years.

So that uncertainty causes them to go into a wait and see mode.

And that has implications for the outlook for growth in the second half of 2025.

Gavin Jackson> And so when we talk about that, we'll get into more details on that too, but, we're talking about the tariffs during that campaign, the presidential campaign that was throughout this year as well.

We were talking about them.

But it has been starts and stops.

We're talking about this uncertainty.

And in fact, we had one of your colleagues on back in February when we first saw those tariffs go on to our trading partners in Mexico and Canada as well as China, they were paused and then reimplemented after making some concessions.

So it seems like it's a negotiating tactic.

But at the same time, we're not seeing the entire fruition of these negotiations at the same time.

But right now, there is still a 10 percent tariff rate on all of our trade partners and a 125 percent tariff rate on China as of our taping Thursday morning.

So this trade war is still afoot, despite what we saw the markets do on Wednesday.

So the uncertainty still remains.

Dr. Joey Von Nessen> Very much so.

And where we are today compared to where we were on April 2nd on, as President Trump called Liberation Day, it's been about a week since then.

And tariffs today, as they stand are still higher than they were then.

So that creates questions about the implications for price increases later this year and inflation resurging and implications for businesses.

Are they going to face additional costs and are consumers going to face additional costs and what does that look like?

Because at the end of the day, in the short run, the impact of tariffs is to raise prices for consumers and for businesses.

They can have potentially long run benefits, which we can talk about in terms of more manufacturing investment.

But those price increases are something that will happen fairly quickly and that generates concerns about the outlook for 2025, because the other component to remember here is that consumers are still down compared to their purchasing power relative to where they were before the pandemic.

In other words, prices have risen faster than wages since December of 2019.

So consumers are still worse off compared to pre-pandemic norms.

And so if you add to that additional price hikes this year because of tariffs, that can cause consumers to pull back on spending and can reduce economic growth.

Gavin Jackson> And I definitely want to talk more about how this is going to impact folks in South Carolina.

But I mean, we've seen those prices already in the grocery store.

They've already been a holdover from last year and years prior when it comes to inflation, too, which we'll talk about in a moment.

But it's already kind of built in too.

But it's also going up, and then everyone's trying to make sure that, you know, they can profit, but they don't know how to make a profit.

So I guess it's just easier to go high than than to go low for the American consumer.

Dr. Joey Von Nessen> Well, it depends on the business.

And in some cases they pass along price increases to the consumer.

In some cases they can absorb it.

But it depends on what their market looks like and what they think consumers can tolerate versus not.

So every industry and every business is different in that case.

And, but that feeds that uncertainty because consumers don't know and businesses don't know whether they're going to be facing the same cost structure a week or two from now as they are today.

So that just creates a lot of uncertainty.

And again, that's really the theme that we're that we're seeing across all sectors.

Gavin Jackson> Yeah, and it's also kind of confusing too, because it's all somewhat self-inflicted.

We can talk about the motivations behind this, but do you think these tariffs were actually used as a negotiating tactic based on what we've seen, or do you think the president blinked as the Wall Street Journal reports, in the midst of this global upheaval, recession worries, potential financial panic, the concerning government bond yields, which really was a big red flag for some folks?

Because we've got two different messages from Treasury Secretary Bessent, who called this the art of the deal.

And then later in the day, Trump said people were getting yippy and were afraid.

I mean, maybe he was talking about the barrage of CEOs that said things like, you know, we're in a recession, like Larry Fink said from, BlackRock or J.P. Morgan Chase CEO Jamie Dimon saying it will slow down growth.

I mean, I'm assuming a lot of that had to weigh on this decision, but this was all predicted in a sense, too.

Dr. Joey Von Nessen> Yes.

And I think the overarching goal of the tariffs is more towards negotiation for for better deals in the long run, because if we look at what tariffs can do, if they're targeted, they can have benefits specifically to certain industries or certain regions within the U.S.

But these broad based tariffs typically are not.

They're just going to cause price increases, create this uncertainty and instability that we've seen.

So that's not likely to be the goal or the long run outcome here.

And that has had wins in the past.

So we'll see if that plays out.

But I think that's the overarching goal.

But we have to remember too, that trade is been has been enormously advantageous for it for the U.S. And an example that is very illustrative of or illustrative of of what, what trade can do and the benefits that we see.

If you think about a basic manufactured good like a television, a television cost 400 dollars roughly back in 1965.

Today you can also buy a brand new television for about 400 dollars.

But if you adjust prices, what was 400 dollars?

What would that be worth in 2025 dollars?

The answer is about 4000 when you adjust for inflation.

So that means that televisions are about 90 percent less expensive today than they were in the 1960s.

And so what are we spending the rest of those dollars on?

We're spending them on streaming services or, going out to eat or a number of other products.

And so that's made us better off.

And that's a combination of technology and trade.

So we see trade with clear benefits over time, but we can also look at communities throughout the U.S that have been struggling and could benefit from more manufacturing investments.

And so it's really a back and forth between how do you benefit from both elements there?

Gavin Jackson> Yeah, that's decades of globalization.

And but then at the same time, you know, the whole reason this tariff war, this trade war has existed is because the president, said trade deficits pose a national security threat, and that's why these tariffs are needed.

He passed an executive order that declared a national emergency in response to what it, what they called unusual and an extraordinary threat to the American economy and security.

That threat is based on the domestic economic policies of key trading partners and structural imbalances in the global trading system.

Can you talk about trade deficits and whether that alone is the biggest threat to our to our economic, you know, connectivity with other global partners?

Dr. Joey Von Nessen> Well, trade deficits typically aren't as a general rule.

That's just the nature of trade.

And in some countries we are looking to buy more from them than they are from us.

And that makes both countries better off.

So trade deficits in and of themselves are not a problem.

But it is certainly true that there are certain industries where we don't want to be totally reliant on foreign countries.

If we're relying on raw materials to make or to support our military infrastructure, for example, that may not be the wisest course of action.

So there are national security concerns that would justify more protectionist policies.

But as a general rule, particularly when you're not talking about national security, trade deficits are not really a problem per se.

They just reflect the fact that we are buying more from them than they are from us.

But it's still a situation where it's voluntary trade and it makes everybody better off because we are getting those goods for, for lower prices.

So we're essentially going for those market efficiencies.

Gavin Jackson> And Joey, but at the same time, we're attacking and we're dealing with these tariffs on trade partners too.

You know, China and Mexico where a lot of American businesses have moved their operations or some of their manufacturing for lower labor costs.

And the advantages of that, that's, you know, NAFTA, USMCA, that's the benefits of those trade agreements.

But at the end of the day, it almost seems like this has just been a lot when we're talking about negotiating, using these tariffs as negotiating, tactics.

It seems like it's just a today just us versus China.

When it comes down to it, with this big world, 125 percent tariffs and they've retaliated, I think to the tune of 84 percent, too.

So it seems like all that to just get to this, why can't just be like China versus America instead of dragging the EU, which is also getting mad about Canada, is getting mad at us too.

I mean, like everyone's griping, I don't know how much more advantageous it's going to be for us to negotiate with those guys when we already have trade agreements in place versus going after the big one, like China.

Dr. Joey Von Nessen> Yes.

And China is certainly a major trading partner, and that looks like where we are going to be focused, where we're going to be focusing on in the coming months.

Again, we'll see how that plays out.

But it is certainly fair to say that looking at these trade agreements, what's going to be most appropriate for any type of manufacturing offshoring is that feasible?

What does that mean?

Because at the end of the day, we have to look at the costs and the benefits.

Right.

And so, when you look at tariffs, they're ultimately just that, tax on imports.

And so is the price increase to consumers.

Does that justify the increase in manufacturing that we may see the offshoring in the United States, weighing those costs and benefits.

The other factor is that when we look at these different markets, the Chinese and really, around the world, most businesses are looking to get access to the American market.

Because we are one of the biggest markets in the world.

And that's one reason why these tariff policies have the potential to work as a negotiating strategy, because businesses do want to be here.

They want access to the American market.

And so if we can create incentives for them to locate here in order to serve the market, then they may relocate.

Again, a lot of back and forth, and we don't know where that's going to land yet.

Gavin Jackson> Well, White House trade advisor Peter Navarro prefer these more aggressive tariffs versus, you know, some smaller ones, insisting it would create a revival in American manufacturing.

Obviously, that's a long term thing, especially when you talk about planning to build a plant here or planning to put a plant somewhere else.

Does America need a manufacturing revival, in your opinion?

Can we do that with the labor force and the cost of labor in America versus another place like Mexico?

Dr. Joey Von Nessen> Well, that's another question.

Is that, when we look at, so there are a number of factors.

The labor market is certainly one, because right now we have a very low unemployment rate across the U.S. and in South Carolina.

And most businesses are already looking for workers.

And so that begs the question of where we're going to find the workforce if we do see significant offshoring in the U.S.

So, that's one element.

And then we also have to look at other pieces with respect to, as you mentioned, these long term, long term trajectories in terms of what these investments look like and whether any type of announcements, the extent to which that can translate into job creation, creating policies that are stable over time and can continue to be implemented so that businesses can plan for the future.

So there are multiple factors again, at play there.

Gavin Jackson>Joey, when we talk about this manufacturing revival or this attempt at it, spring is always a big time for economic development news in South Carolina.

Other states.

You get involved in the economic research and some of these, these big announcements to gain some background on how much the financial impact could be for the state.

What is the appetite right now in this environment right now for major investments in South Carolina?

Is there a chill because of all this uncertainty?

Dr. Joey Von Nessen> Well, there's always an appetite for more investment in the state.

That's something that South Carolina has done very well in terms of attracting foreign direct investment, in terms of attracting manufacturing.

So if we can see more investments in South Carolina, that's something that could potentially benefit the state.

But the again, the challenge is, is in the details of these policies.

So the best way to look at that is to provide an example.

So if we consider the steel and aluminum tariffs that were implemented during the first Trump administration, that did have an effect of boosting demand for steel and aluminum in the United States.

And steel and aluminum manufacturers saw increases in activity overall, which really benefited the local communities in which they were located in terms of creating new jobs and incomes for local residents.

But, at the same time, the cost of steel and aluminum went up because we saw customers of or buyers of steel and aluminum that were paying more for American made products, rather than buying it from overseas.

And so the customers were then the business customers that were using those as inputs pass those cost, in some cases onto their consumers, and they were forced to in some cases.

And so an example of that would be an automotive manufacturer that is buying steel and aluminum.

So if you're in a state like South Carolina, where you see in that particular case steel and aluminum manufacturers that are benefiting, but the automotive industry that may not be, is that a net win or not?

That depends.

And so you have to look at different regions and you have to see, well, what type of businesses do we have.

Are they the, are they going to be primarily, beneficiaries or not.

For these different trade policies and make that calculation that way?

And that's why targeted tariffs are very important because they are able to really calculate these costs and benefits to make sure that we see as many net wins as possible in these local areas.

Versus 10 percent and 125 percent, things like that.

Dr. Joey Von Nessen> Right, versus these broad based.

Yes, exactly.

But Joey, you brought up BMW, obviously one of the major manufacturers in the state.

They've been here, I think, for 30 years now in Spartanburg.

And just a huge part of that economy, suppliers, people, I mean, education workforce all feed into this.

And we're seeing similar things that Boeing and other manufacturers in the state, the tire industry, for example, and you had Peter Navarro say some, some negative things about BMW and the manufacturing process there.

Can you break down what they're trying to do when it comes to, you know, go after places like, BMW?

Maybe they don't do everything at that one plant, but they take those parts just like Boeing does when they build their Dreamliners here.

It comes from all over.

That's globalization at work.

Exactly.

And it's important to be clear about what, what they are saying.

And number one, I think we have to say very clearly that that the automotive industry has been a game changer for South Carolina, no question about that.

And BMW and others have been extraordinarily beneficial for the state.

And that's been clear.

And automotive manufacturing and advanced manufacturing more generally has been the primary driver of our growth in South Carolina, certainly for the last 15 to 20 years.

So I think the criticism is not so much from those major wins, but as you mentioned, it's the fact that we could potentially be doing more.

We could have more... Gavin Jackson> But that's a business call, that's BMW call.

That's not the federal government to say that.

Dr. Joey Von Nessen> Yes, exactly, exactly.

And and the question is that can we incentivize more local production?

And would that be a net win?

Again, if you incentivize local production, that could also increase the cost because businesses would be doing it if it were efficient to, to to make that decision.

And again, tariffs come back to those costs and benefits.

Increased costs for the customers, but you can see more business activity locally.

Does that generate a net win or not.

So, I think the criticism is coming from we could be doing more.

And again downplaying the the increased prices that consumers would be facing.

Gavin Jackson> Yeah, when everyone's already kind of sick of high prices.

I mean it's like, it's tricky.

Dr. Joey Von Nessen> Yes.

And that's another major risk factor.

And consumers, as we mentioned before, are, still worse off today from a purchasing power perspective than they were before the pandemic.

And rising prices in 2025 exacerbates that, could cause consumers to begin to pull back, and that could lead to slower growth or even to a recession.

And that's really the biggest risk factor for 2025 and why there's so much, so much talk and connection between tariff activity and recession, because tariffs will lead to prices rising.

And given that, to price increases, and given that consumers are already wary and have already seen that and are feeling financially squeezed, that can have a real impact on the outlook.

Gavin Jackson> And then when you look for indicators, I mean, we're gonna be looking at, you know, imports, obviously, when we talk about people like Boeing, people like these bigger manufacturers, I mean, we still require a lot of stuff from China, especially these suppliers, these manufacturers, I mean, and of course, if we're still going to be looking at these tariffs, these huge tariffs on Chinese products, that's still going to be something that comes into play.

So what should we be watching for in terms of maybe port traffic, more guidance from these major manufacturers or what are you looking for?

Dr. Joey Von Nessen> Well, right now we're just looking for more certainty in terms of stabilization of what, these tariffs are going to look like in the long run.

And where are we going to be in December of 2025?

I don't think anybody has an answer to that question.

So the key in the short run is to hopefully establish some additional stability that can allow businesses to begin making these decisions again, starting to plan for the future and hopefully stabilize the market environment that we're seeing.

And one metric of that, of course, is the stock market.

And the more certainty we get, the less likely we are to see a broader pullback in and economic activity.

The other factor, when we're looking at the, looking at the outlook for this year, is that we really don't know what the impact is going to be on the labor market and on broader consumer spending.

All the data that we have so far only go through the end of March, which is before we saw most of this back and forth on on tariffs.

So we really don't have a good read on what it is doing, if anything, to the labor market or consumer spending yet.

We'll get more information on that in the weeks ahead and that will give us some insight as to what we can expect going forward.

Gavin Jackson> Seems like we've been operating in a bit of an economic experiment here.

Dr. Joey Von Nessen> Yes, I think that's very fair.

Gavin Jackson> I'm sure your students and I'm sure other folks at Darla Moore School of Business, would write research papers on this for years to come.

But is that, is this the way to do it?

I mean, shouldn't you make me think through.

I mean, you're telling me back and forth that, you know, if you take from this column, it's going to increase this column and vice versa.

Something I mean, it affects everyone.

We're just talking about South Carolina.

We could be talking about the entire global economy here.

It doesn't seem like it was thought through as much.

So what's your advice to business owners who are caught in this cycle, who might not know what their their costs could be for some of these input goods, or how can they plan to make, investments or build a new plant in America, or make hiring choices if there is a potential for financial collapse, or if we're still talking about having a trade war with China, which they still need because we're still dependent on China?

Dr. Joey Von Nessen> Well, I think the best advice for businesses right now is not to overreact.

And wherever we are today, that is not going to be where we are six months from now.

This back and forth is going to continue.

We're, I don't think close to an equilibrium point in terms of where we're going to be.

So if things are looking good or bad at the moment, I think step back and recognize that they may change.

But aside from that, just the reality that we are in an uncertain environment and it is hard to plan and I don't think there's any way around that.

And that's one of the challenges, the key challenge that we're seeing in 2025.

Gavin Jackson> So what I'm hearing is kind of take your own pause and you know, that slows growth on its own way, especially when you talk about Main Street.

The American consumer, you know, makes up about three fourths of the economy.

<Yes> I've heard people talking about stockpiling coffee, right.

Or buying a car ahead of it, ahead of the tariffs or maybe not making a jump to a different career at this time.

So also putting people's lives on hold here, too.

So everything's kind of rippling down.

And I'm assuming we do wait to see what GDP numbers look like, what retail spending numbers look like, in order to see really how this is shaking out.

Dr. Joey Von Nessen> Yes.

And for consumers.

I think they are looking again at the same the same advice not to not to overreact, because this economy has been remarkably resilient over the last several years, and it's possible that we could see, limited effects.

Again, we don't know what that's going to look like yet, but especially if we do see, any type of negotiations that are made in the short run and these tariffs aren't long lived, the impacts to the economy as a whole could be fairly minimal, and we could avoid recession.

You know, I wouldn't say recession is inevitable this year by any means.

I think the likelihood is certainly gone up, since since the first of the year because of the uncertainty.

But again, the economy has held up fairly well.

And right now we still have a very good job market in South Carolina.

As of the end of March, we see that industries are growing across the board.

So our economy is still in fairly good shape.

So again, not overreacting, I think is important at this point.

And just recognizing that we're in a state of flux and we're, not to that equilibrium point yet.

Gavin Jackson> Yeah.

A lot of those big bank CEOs we're talking about recession early, began this week, and now it's changed a little bit.

That's been tempered a little bit more, like we said, BlackRock CEO Larry Fink said that he's been talking to CEOs and they think that we're likely in a recession.

But you're saying not inevitable, but we're still not out of the woods yet.

But again, market fundamentals, the economic fundamentals in our economy are strong.

This is just one aspect of it.

And it's one man and it's one situation driving all of these fluctuations in volatility.

Joey Von Nessen> Yes.

Because if we look at a recession, a recession has a very specific technical term in terms of metrics that we look for.

So that includes everything from industrial production to manufacturing and retail sales to income levels, and by all those metrics, things are looking very good.

And our economy, as you mentioned, the fundamentals are strong and we've seen very good performance through the first quarter.

So, we will see positive growth in the first quarter of 2025, almost certainly.

It will probably be slower than what we saw in the fourth quarter of 2024, which was around 2.3 percent growth.

I think it's a much safer bet to say that when we look back a year from now, 2025 will see slower growth in 2024 because the uncertainty is having an effect, in terms of pausing these decisions, causing consumers to step back, consumer confidence remains fairly low.

So I think it's much safer to say we will see slower growth this year.

But again a recession not inevitable but increasingly likely.

Gavin Jackson> And Joey we have about three minutes left.

I want just to ask you about a couple of things.

But when we talk about restructuring trade, I mean, this is we're talking about trying to bring manufacturing back to America.

We're also saying we don't know if we can support more manufacturing in America, due to workforce labor issues.

But we're seeing some of our close allies, especially in Asia, like South Korea and Japan, talking to China more.

You're seeing China talking to the E.U.

more.

Are we giving China an opening in a sense, to go around us, or are you talking about getting soybeans again from Brazil like they did in the first Trump administration, which led to Congress having to bail out the American farmers?

So are we, do you think that we're seeing some of these trading partners just say, we don't want to deal with the uncertainty, we're going to go other ways, and that could be the restructuring that comes as a result?

Dr. Joey Von Nessen> Yes, that is definitely a risk.

And we, especially with a large economy like China, where they have those additional resources to be able to build up their own internal supply chains and rely less on the United States or, rely more on other countries that is certainly a possibility.

We've seen that before.

And the other risk factor, particularly when you look at broader manufacturing as a whole, is robots.

We're seeing humanoid robots that are being rapidly deployed in manufacturing facilities all around the world.

And the other thing that, I don't think is talked about as much is the fact that when prices rise due to tariffs or any type of cost increase for businesses, remember that the biggest cost for most businesses is labor.

And so they, so replacing workers with robots because of advances in technology becomes more attractive when costs rise, because the relative cost of those investments in new technology goes down.

So it's just more attractive.

And so that's another risk factor as well.

Does it increase the pace of automation, automation in these manufacturing facilities as a result of the uncertainty and the higher costs?

Gavin Jackson> Something else to think about on top of everything else.

Thanks for that, Joey.

But we got new inflation numbers out this morning from March that showed inflation at 2.4 percent.

That was lower than estimates of 2.6 percent.

So some good news there.

What's your take on C.P.I.

and where do you think the Federal Reserve has to go at this point?

They also seem to be in a pretty tight spot when it comes to everything going on and how to kind of read through the dust storm.

Dr. Joey Von Nessen> Yes.

So the challenge that the fed has is that they want to lower rates if the economy begins to slow, but they, but by lowering rates they risk putting upward pressure on inflation by stimulating the economy.

And so if inflation is higher than where we want it to be, then that's something they want to stay away from.

So this puts them in a between a rock and a hard place.

But, that's the good news about the inflation report that we saw this morning, which is that we're continuing to see inflation ticked downwards.

That gives, Chair Powell a little more wiggle room to lower rates this year if the economy slows, because there's not quite as much, inflationary pressure as we were seeing earlier.

So that's a little bit of a sigh of relief for, for him.

Not a whole lot.

So they're still in a very, very tight spot, but, perhaps some good news there.

In the sense that if the economy does slow, we're more likely to see a, a rate cut in order to keep things stable and prevent us from a recession.

Gavin Jackson> Which some people think is maybe the game all along, but Dr. Joey Von Nessen we will see you in 90 days, I think.

<Yes.

Yep, yep.

I'm good, I'm good> Joey Von Nessen with the U.S.C.

Darla Moore School of Business, thank you as always.

Thanks, Gavin.

And that's it for us this week for South Carolina E.T.V.

I'm Gavin Jackson.

Be well South Carolina.

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