Even with the economic uncertainty following the United Kingdom’s decision in a referendum last Thursday to leave the European Union, Europe’s loss could be South Carolina’s gain in the long term.
Although the U.K. is the state’s fifth-largest trading partner, with $2.8 billion in goods exported there last year, according to the S.C. Commerce Department, the recent boom of foreign investment is likely to absorb any short-term economic shock. And as the U.K. extricates itself from the 27 remaining members of the EU, South Carolina is well-positioned to benefit later on, both from renegotiated trade deals and as a stable place to invest.
107 U.K.-based companies in South Carolina
“The thing about South Carolina is that there is a lot of momentum from significant investment, from foreign and domestic companies,” said David Cuda, the director of corporate solutions at the South Carolina office of global commercial real estate firm Colliers International.
German automaker BMW announced a billion-dollar investment in its Upstate plant in March, and Volvo selected South Carolina for its first American factory last year, investing $500 million in a facility in Berkeley County.
“These investments don’t just stop,” Cuda said. “I think it’s a good thing, because this momentum could help us carry through whatever ripples come out of this.”
The fact that South Carolina’s primary exports are agricultural products, aircraft, automobiles and automotive parts, particularly tires, could be an advantage.
“It would be expected that the food and automotive exports to the U.K. would see a healthy increase if favorable trade terms were established,” said Pennie Bingham, executive director of the World Trade Center Charleston. “The U.K. could likely look to the U.S. to replace some of the trade lost with the EU countries.”
A lot will depend on how Britain emerges on the other side of European integration.
If it can remain economically stable, there should be no need to worry, said University of South Carolina economics professor John McDermott.
“For a lot of our trade, with less (EU) regulatory burden and freer trade it might actually help South Carolina,” he said.
Foreign investment in South Carolina has increased by 13.5 percent in the past five years, according to the Organization for International Investment, a Washington-based trade group. The number of so-called “insourced” jobs in the state, supported by foreign firms, has increased as well. South Carolina leads the country in the share of its workforce supported by foreign firms, according to data from the U.S. Bureau of Economic Analysis.
U.S. subsidiaries of global companies are writing paychecks for 8 percent of South Carolina’s workforce in the private sector, providing 127,300 jobs.
To be sure, only about 11,600 of those jobs are for the 107 U.K.-based firms in South Carolina.
Tens of thousands more South Carolinians work for German and French firms, and there is some concern about a ripple effect – that overall uncertainty about the European Union’s future could have an impact.
“We are very sensitive in South Carolina to what happens globally,” Cuda said. “I wouldn’t say we’re dependent, but so much of our investment over the last 20 years had been from global companies, and we are very interconnected to international commerce now.”
127,300 Jobs in South Carolina that come from U.S. subsidiaries of global companies
Many executives of U.K.-based companies with operations in South Carolina publicly opposed the “leave” vote ahead of last week’s referendum.
The chairman of London-based defense contractor BAE Systems International, which has operations in Aiken and Charleston, warned in May of the risks of leaving the EU. So did the CEO of U.K.-headquartered GlaxoSmithKline – the world’s sixth-largest pharmaceutical company, which has operations in Aiken – calling it a mistake.
British companies span an impressively diverse spectrum in the state. These include GKN Aerospace, which opened a facility in May 2015 in Orangeburg; Rexam, a beverage maker with operations in Bishopville; filtration services provider Porvair in Rock Hill; and sausage casing maker Devro, with a plant in Sandy Run.
International Hotels Group runs a call center in North Charleston. Britax, a British company that makes child care products such as car seats and strollers, opened its 500,000-square-foot Americas headquarters in Fort Mill in 2013. BP’s Cooper River chemicals site near Charleston is one of the world’s largest producers of purified terephthalic acid (PTA), and it’s undergoing a $170 million infrastructure improvement project. Representatives from these companies did not respond to requests for comment.
In the short term, South Carolina might see a drop in exports to the U.K. if the uncertainty surrounding its leaving the EU causes an economic recession. If that recession affects other European trading partners – such as Germany, France and Italy – the impact could extend to exports to those countries as well, according to Bingham.
Despite the so-called “special relationship” between the U.S. and the U.K., its departure from the EU might disrupt trade with the U.K. while a new trade deal is negotiated, which could hurt South Carolinian workers dependent on exports there. The European Union negotiated tariffs, product standards and trade rules on behalf of all of its members, including the United Kingdom.
Immediately following the referendum, shock waves were felt in the global financial markets, with the British pound dropping to the lowest point in 30 years against the U.S. dollar.
If the dollar remains strong, U.S. agricultural exports such as beef, chicken and farm products will become more expensive abroad, giving an advantage to other countries’ sales, such as Brazilian beef, Argentine soybeans and Ukrainian wheat.
“At the very least, the stronger U.S. dollar will make our exports more expensive and dampen demand somewhat,” Bingham said.
In 2013, the U.K. was the fourth-largest source of foreign investment in South Carolina, according to the International Trade Administration.
On the bright side, a strong dollar could draw more investment from EU countries and benefit U.S. trade hubs such as the Port of Charleston, Bingham said.
Cuda agrees that investors may see the state as a “great safe harbor.”
“All global economies react and sort of get terrorized by the unknown,” he said. “But I will say I do see the silver lining in that South Carolina – and the Southeast of the U.S. – has historically been a very safe place to invest.”
While economists and businesses on both sides of the pond are closely watching the situation, with the U.K. not set to leave the EU for another two years many agree it is too soon to determine the outcome.
“We’re monitoring the issue but don’t expect a material impact to our port,” Erin Dhand, the South Carolina Ports Authority communications manager, told McClatchy.