Minnesota companies rush to assess damage of tariffs, map next steps

Minnesota companies were assessing the damage Tuesday of the nascent trade war between the United States and its three biggest trade partners, an escalating tit-for-tat that could affect billions of dollars in state imports and exports.

From Canadian oil to Chinese electronics to Mexican fruit, Minnesota relies on more than $20 billion in foreign trade each year for goods the state doesn’t — or can’t — produce. Though U.S. tariffs are a tax on these foreign imports, they will also affect Minnesota exports as production costs rise for local goods made with foreign materials and countries retaliate with tariffs of their own.

“This is adding additional uncertainty for business people that we don’t need,” said Traci Tapani, co-president of Wyoming Machine in Stacy, Minn. “It’s going to hold people back from making decisions. It’s going to make people cautious, because we don’t know the full impact.”

President Donald Trump overnight imposed 25% tariffs on Mexican and Canadian imports — limiting the tax on Canadian energy to 10% — and doubled last month’s tariff on Chinese products to 20%.

China responded with tariffs of up to 15% on American agricultural exports, while Canada will impose tariffs on more than $100 billion of American goods through the next few weeks. Mexico plans to unveil its tariff plans Sunday.

Ontario Premier Doug Ford threatened a 25% surcharge on all electricity the Canadian province exports to the U.S. and to potentially cut off the flow entirely. However, that’s unlikely to have serious consequences for Minnesota, utility officials and regional grid operators said Tuesday.

The U.S. tariffs on China are on top of those Trump imposed during his first trade war in 2018. The president is acting more quickly and indiscriminately this time, complicating business efforts to respond.

“This time, it’s kind of like, ‘Business be damned,’” said Clearfield President and CEO Cheri Beranek. “‘Your costs are going up, and it’s a cost that we’re directing you to bear.‘”

Brooklyn Park-based Clearfield, which produces broadband equipment, has facilities in the United States, Mexico and Finland as well as sourcing relationships throughout Asia. Some products — including an essential plastic cassette the company produces in the U.S., Mexico and China to ensure availability — cross the border multiple times during the assembly process and will pick up a tariff with each crossing.

Electrical equipment, machinery and parts is one of Minnesota’s top non-agriculture export categories. Most products contain at least some foreign-made components, with many relying on Canada and Mexico, according to an Economic Policy Institute Analysis of USITC Dataweb data.

“Nothing is 100% made in America. We live in a globally integrated economy,” said Adam Hersh, senior economist at the Economic Policy Institute. “Global supply chains are integrated. They’re assembling components from all over the world into final products. So when the import tariffs raise the cost of production of those intermediate parts, then the final goods may also increase in cost.”

Clearfield will consider its products to figure out whether it’s more cost-effective to move production here or weather tariffs, Beranek said.

“We will be reviewing how much of that we could absorb and how much of that we will need to pass along to our customer base,” she said. “But there will be an increase to customers at some point in time.”

U.S. Sen. Amy Klobuchar said in a statement Tuesday that while she supports targeted tariffs, “these across-the-board tariffs will make it harder for Americans to put food on the table and will squeeze farmers who will lose valuable export markets and see higher input costs.”

“Already, we are seeing retail stores and refineries increase prices — and retaliation from other countries that will raise prices even more," she said.

Because the importer pays tariffs and the costs are typically passed down the supply chain, consumers should expect to pay more for a range of goods in the coming weeks and months.

While higher prices for many items won’t show up immediately, fruits and vegetables from Mexico could be more expensive by the end of the week.

“The consumer will likely see price increases over the next couple of days,” said Brian Cornell, CEO of Minneapolis-based Target, on Tuesday.

Minnesotans could soon see higher gas prices, too, as the state’s refineries primarily rely on Canadian crude oil.

Corie Barry, CEO of Richfield-based Best Buy, told analysts Tuesday that price increases are “highly likely” as the company’s vendors pass along higher costs for electronics from China and Mexico. Best Buy has an average of six weeks of inventory, so consumers might feel the effects later this spring if tariffs remain in place.

Home improvement stores will face higher costs for Canadian lumber and metal products as well as Chinese hardware and tools, according to S&P Global Ratings, but the impact on prices could be muted. Retailers such as Home Depot and Lowe’s “will seek to offset tariffs within their supply chains to mitigate before attempting to pass along the remainder of costs to consumers,” the credit agency reported.

Some companies had already changed their supply chains after Trump’s first trade war and disruptions from the COVID-19 pandemic. Target has reduced its reliance on imports, and half its products now come from U.S. suppliers. Of imported products, those from China fell from 60% to 30% between 2017 and 2024. The goal is to have that down to 25% by the end of this year.

Still, establishing new trade relationships or reshoring manufacturing — a stated goal of U.S. tariffs — won’t happen overnight.

Polaris CEO Mike Speetzen reminded analysts at an annual Raymond James investor conference Tuesday that the Medina-based powersports company has been dealing with tariffs on Chinese goods since the first Trump administration — and has reduced related costs by a couple hundred million dollars since 2018.

Polaris’ largest plant is in Monterrey, Mexico, where it produces off-road products. About 60% of that production comes back to the U.S. and is subject to the new tariffs.

While there are possible production tweaks Polaris could make to reduce the tariff impact, “it’s not free, and it’s not easy”, Speetzen told analysts. “I want to make sure that these things are in place long-term before I commit us to spending that.”

Businesses will need short-, medium- and long-term plans to navigate U.S. and retaliatory tariffs, said Dave Townsend, a partner in the Minneapolis law office of Dorsey & Whitney who has represented U.S.-based and foreign clients on international trade-related disputes.

In the immediate term, he said, companies should understand the factors that go into calculating the tariffs, including the type of tariff, the country of origin and the value of traded goods.

Longer term, it’s back to basics.

“The optimal situation is having a diversity of supply, and diversity in this political context means multiple countries of origin,” Townsend said. “Because we don’t know what’s coming next.”

The Associated Press and Minnesota Star Tribune staff writers Brooks Johnson, Carson Hartzog, Kristoffer Tigue and Walker Orenstein contributed to this report.