Minnesota companies aren't panicking about potential fallout from tariffs battle

WASHINGTON — First it was Minnesota's solar energy industry. Then, it was the state's commercial building contractors and other steel and aluminum users. Now, it is corn and soybean growers, plus pork producers.

The number of Minnesota businesses at risk from a possible trade war sparked by President Donald Trump's America First trade policy grows with each announcement of new U.S. tariffs on foreign products. Retaliatory tariff proposals in the 28-nation European Union and China have expanded well beyond imports Trump has targeted so far.

Foreign nations face a 30 percent punitive U.S. tariff on solar panels, a 25 percent tariff on steel, a 20 percent tariff on washing machines and a 10 percent tariff on aluminum. Soon to be released is a long list of Chinese products that also will be hit with tariffs.

As the U.S. plans to penalize trading partners who don't change what the Trump administration considers unfair practices, the accused countries look to strike back if they cannot make a deal. Potential retaliatory taxes discussed so far could reach deep into a range of U.S. exports that figure prominently in Minnesota's economy.

At this point, nobody is talking about going out of business. In fact, several companies contacted by the Star Tribune either expect little immediate impact or are withholding judgment until they see if their products will be on the lists. The U.S. continues to hold discussions with the European Union and China and several other nations that would be hit by the tariffs. Mexico and Canada won't be swept into the mix until May 1.

But the upshot is clear. Without significant compromise, pork, corn, soybeans and other meats and commodities in Minnesota's critical agricultural sector could soon be harder to sell abroad if they are punitively taxed. Lagging exports could put greater Minnesota in the economic cross hairs. Materials imported by Minnesota commercial builders, solar energy installers and manufacturers of all kinds could soon cost more. Higher production costs could raise prices for offices and machinery. And that 10-buck T-shirt you used to buy from Target? It may go up to $12.50 if Trump places tariffs on Chinese-made clothes.

Retaliatory tariffs under consideration in Europe and China also extend to U.S. exports such as windows and doors (think Andersen Corporation), lawn mowers (think Toro), motorcycles (think Polaris) and leather footwear (think Red Wing Shoes).

China has identified 128 U.S. products that it may tax in response to U.S. punitive tariffs. The list of Chinese retaliatory tariffs has not yet been announced, but a 2015 report by foreign investment consultants Dezan Shira & Associates shows the extent of Minnesota's economic ties to China.

"China is one of the state's largest markets for optic fiber, optical/checking instruments and integrated circuits," the report states. In addition, "numerous Minnesota-based companies have been established in China, including 3M, Cargill, Best Buy, Target, General Mills, Medtronic, Hormel, Imation, Ecolab, Thomson Legal & Regulatory, Carlson Cos. and Andersen Corporation."

Minnesota imported more than $11 billion in nonagricultural Chinese products in 2017, according to the U.S. Census Bureau, and exported nearly $2 billion in nonagricultural goods to China that same year.

China annually buys more than half the soybeans Minnesota farmers export.

"Trade politics have overshadowed business-to-business relationships, and unfortunately, it comes at a time when Minnesota businesses could be profiting from developments in China," said Dezan Shira's Adam Pitman, a Minnesotan stationed in Asia. "China is attempting to restructure its economy from one based on manufacturing and exports to one based on technology, services, and consumption. Meanwhile, the pace and scale of China's growth has created a number of education, healthcare and pollution challenges in the country. Minnesota businesses are competitive in these problem areas for China — it's an opportunity to help them change gears, and earn a buck doing it."

"Overall, we see the impact as neutral for us," a spokesman for food processor Hormel said in an e-mail.

"As a global business that both imports and exports and has operations and employees around the world, we are still evaluating how any proposed changes in trade tariffs will affect us," a spokeswoman for Red Wing Shoes said.

But few companies outside of Minnesota's iron mining industry predict an uptick in sales or hiring because of Trump's protective tariffs.

This makes sense to University of Minnesota trade specialist Robert Kudrle. "Virtually all protectionism hurts almost everyone a little, and helps a few people a lot," he explained. The biggest potential losers at this point, he said, are "companies that buy from China and their customers."

Trump's director of trade and manufacturing, Peter Navarro, said the president is playing the long game on global trade, especially with regard to China. While Americans have been able to purchase cheaper goods and corporations have been able to increase profits from Chinese trade, Navarro said, buying cheap from China has held back growth of U.S. gross domestic product and wage gains. He offered no time frame for when the White House expects U.S. production to increase enough to create jobs and fuel pay raises.

Kudrle counters that the nation "is not being done in by trade deficits."

"You have deficits because of domestic spending and exchange rates," Kudrle said, adding that "trade disputes are bad for the economy."

A possible unintended consequence of Trump's tariffs is that they could drive business expansion out of the U.S., not bring it back. Hormel already employs a form of tariff protection that insulates it from new threats by the European Union to tax U.S.-made peanut butter. Hormel makes the Skippy brand peanut butter that it sells in the E.U. in Europe. Likewise, Skippy peanut butter sold in China is made in China. So protective tariffs do not apply.

"Our company does not export pork to China," a Hormel spokesman said. "We do, however, have manufacturing facilities in China and source pork in-country for that market."

If moving manufacturing operations outside U.S. borders saves on the cost of Trump's tariffs, those tariffs will have backfired, some suggest. Charlie Weaver directs the Minnesota Business Partnership, a group of the state's leading CEOs who generally favor free trade. Weaver used the example of a new air conditioner production plant planned near the U.S.-Mexican border.