Tariff threats are bad for Minnesota

Here in Minnesota, we are blessed to be home to more global companies per capita than nearly any other state. And Minnesotans are rightly proud of homegrown businesses like Medtronic, 3M, Ecolab, Cargill, Land O'Lakes, General Mills, Toro, Polaris and many more. These companies employ tens of thousands of Minnesotans, pay billions in taxes and contribute generously to our quality of life.

And right now, thanks to their strong leadership and constant innovation, these companies are succeeding in a hyper-competitive global economy, meeting consumer needs while providing good jobs and growing Minnesota's economy.

So what could go wrong? What could possibly harm Minnesota's best companies, their employees and consumers and deflate the state economy?

The initiation of a trade war, that's what.

President Donald Trump's recent announcement of steep new tariffs on steel and aluminum rattled the stock market, business leaders and lawmakers of both parties. Why? Because imposing tariffs on steel and aluminum will raise prices for consumers, cost Americans their jobs and result in a trade war that America cannot win.

While this proposal is bad policy on its own, the president recently made it even worse by linking it to changes he wants in the North American Free Trade Agreement (NAFTA) — changes that are particularly harmful to Minnesota companies.

In thinking about the U.S. economy and the policy decisions that can undermine its success, it is critical to understand that for decades our economy has been based on our long-standing commitment to global trade and free enterprise. That commitment has served Minnesota well as companies such as Cargill, 3M, Toro, Polaris and Medtronic, which depend on free trade, have prospered and expanded here.

This isn't some academic debate. Any policy that restricts free trade will negatively impact our economy and result in lost jobs for hard-working Minnesotans.

Punitive tariffs do not solve trade disputes. They deepen them by undermining existing trade relationships and inviting retaliation against U.S. companies and products. In fact, the European Union and Canada, among others, have already threatened new tariffs on U.S. goods in response to the president's proposal. President Trump in turn threatened to retaliate against the retaliation, saying he would simply impose new tariffs on European automakers.

This, in a nutshell, is how a trade war escalates to the detriment of everyone involved.

Here's what will happen. Companies that currently rely on imports of steel and aluminum will be hit with dramatic cost increases, which will be passed along to U.S. consumers in the form of higher prices on countless consumer products that rely in part on these imports. Everything from cars to electronics to a 12-pack of beer will cost more.

Think about the Toro snow blower you used this week to clear your driveway or the Polaris snowmobile you rode to explore our great system of trails. Both of these Minnesota products, which rely on steel and aluminum in their manufacture, will cost consumers more if these tariffs are put in place.

And of course, Minnesota exporters will be hurt, too, as foreign markets impose tariffs and other barriers in an escalating trade war. And given that 95 percent of the world's consumers live outside of the United States, our economic competitiveness relies in large part on strong trade relationships.

Unfortunately, the tariff issue has now become tangled up with the Trump administration's bid to renegotiate NAFTA. The administration is using the proposed tariffs as a bargaining chip with Canada and Mexico, offering to exclude both nations from the tariffs, but only if they reach a "successful renegotiation" of NAFTA. Trump has threatened in the past to withdraw from NAFTA if the deal is not renegotiated.

For Minnesota, the administration's hardball tactics and tariff threats could be very costly. NAFTA is an essential driver of Minnesota's economy. According to the Star Tribune, "Canada and Mexico alone accounted for $6.4 billion of Minnesota's exports in 2016 — about a third of total exports." And the Minnesota Trade Office estimates that NAFTA is directly responsible for 40,000 Minnesota jobs.

Preserving NAFTA is especially important for agricultural producers and manufacturers, from family farmers to large companies like Cargill, Land O'Lakes, CHS and General Mills.

The bottom line is that protectionist policies — whether imposing new tariffs or "tearing up" NAFTA as Trump has proposed — would end up costing American jobs in general and Minnesota jobs in particular. By attacking the free-market approach to trade that so many Minnesota companies rely on, the president is cutting off his nose to spite his face.

I don't know if the president is a poker player, but let's hope he's bluffing.

Charlie Weaver is executive director of the Minnesota Business Roundtable.