“Small businesses don’t have a voice in this, but we’ll probably incur the most financial harm,” Knapp told Statehouse Report on March 6. “They just don’t have the ability to absorb a massive tax increase, so they’ll have to increase prices, which most can’t, or cut employee hours and jobs.”
Statehouse Report
March 7, 2025
Trump tariffs lead to ‘stagflation’ concerns
By Jack O’Toole, Capitol bureau
President Donald Trump’s on-again, off-again tariff announcements over the past six weeks have some experts using a dirty word most Americans haven’t heard since the darkest economic days of the 1970s.
Stagflation.
For those too young to remember, “stagflation” was the term coined to describe the rare and exceedingly painful combination of low growth and high inflation that plagued the U.S. economy after the price of oil rose roughly tenfold between 1973 and 1979. Put simply, Americans were getting poorer and prices were rising at the same time.
And economists say they’re starting to see similar conditions emerge today.
“Directionally, it is stagflation,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC this week. “It’s higher inflation and weaker economic growth that is the result of policy — tariff policy and immigration policy.”
University of South Carolina economist Joseph Von Nessen agrees that stagflation is a possibility, though he notes Trump’s tariffs have so far been negotiating ploys rather than fully implemented policies. For instance, in just the past week, Trump announced 25% tariffs on Mexican and Canadian goods — only to suspend them days later.
“Stagflation is a possibility, if we see tariffs as they’ve been proposed,” Von Nessen told Statehouse Report in a March 6 interview. “Because in that case, you’d be talking about a scenario in which tariffs would be putting upward pressure on inflation at the same time we’ve seen a pullback in economic growth.”
In fact, Von Nessen explained, just the threat of tariffs is contributing to that pullback, due to the climate of uncertainty it creates for businesses and investors.
“Uncertainty breeds paralysis, because it prevents businesses from being able to make long-run strategic decisions,” he said. “It causes them to go into wait-and-see mode, and can temporarily postpone investment decisions.”
It’s that mix of slowed investment and the possibility of higher prices due to tariffs that has economists talking about stagflation. And South Carolina’s economy, they say, offers a useful example of how it could happen.
Tariff impacts on S.C. factories and farms
To understand the impacts of tariffs, experts say it helps to demystify the subject by calling them what they really are: taxes on imported goods. So if a 25% tariff were imposed on, say, Canadian lumber, which is widely used in the U.S. market, that tax would be passed on to consumers in the form of higher prices for lumber-intensive products like houses.
But for S.C. factories and farms, which exported almost $40 billion in products around the world last year, from SUVs to soybeans, that’s only half of the story. The other half is the retaliatory tariffs foreign countries would then place on U.S. exports, creating a double-whammy for S.C. exporters: higher costs for the imported goods they use in their products, and higher taxes on those products when they reach global consumers.
“South Carolina is an export-oriented manufacturing state,” Von Nessen said. “So, any retaliatory tariffs would affect [exporters’] cost structure and demand for their products.”
But again, Von Nessen urges caution in assessing the impacts, noting that there would be winners in addition to losers if Trump’s tariffs were implemented. For instance, some investors might be tempted to expand S.C. production to serve the domestic market.
Nevertheless, on balance, he says that higher tariffs would be likely to hurt more S.C. producers than they help.
“What economists have found historically is that the costs tend to outweigh the benefits by a wide margin,” he said.
Impacts on small businesses and consumers
While trade discussions tend to focus on major corporations in the Palmetto State like Boeing, BMW and Michelin, S.C. Small Business Chamber of Commerce President Frank Knapp says he’s most concerned about the state’s small retailers and manufacturers.
“Small businesses don’t have a voice in this, but we’ll probably incur the most financial harm,” Knapp told Statehouse Report on March 6. “They just don’t have the ability to absorb a massive tax increase, so they’ll have to increase prices, which most can’t, or cut employee hours and jobs.”
And those employees, he notes, are also S.C. consumers, which means they’ll be facing higher taxes on everything from houses to cars to groceries at the same time they have less money to spend, slowing the state’s economic growth.
And that’s the same toxic mix that led to stagflation in the 1970s.
Still, Von Nessen warns against over-reading the moment, particularly given Trump’s tendency to walk back his most extreme policy announcements.
“We really just don’t know how this is going to play out yet or where we’re going to settle long-term on these tariffs,” he said. “But it’s fair to say that the larger they are and the longer they’re in place, the bigger the impacts will be.”
https://www.statehousereport.com/2025/03/07/tariffs-budget-crazy/