USB Devices not working on Catalina after water spilled over keyboard
Is this a software issue or perhaps it's due to water damage?


It’s water damage.

The USB port (this is  a generalized description) has several pins, but it’s basically two categories - data pins and power pins.  Your USB supplies 5V and up to 500mA.  If USB-C, it can be up to 20V.  This comes from the power rails managed by the SMC.  The data pins go to the USB controller chip.  Your symptoms point to the fact that the USB controller took damage.


  SMC doesn't seem to reset when I try to..? Is it normal to immediately fast-boot after performing an SMC reset?


An SMC reset isn’t going to fix the problem because the power portion of all this is working.  The bottom line is that you have physical damage and “a simple water spill isn’t so simple.”  You need to take it in for service.