Minnesota firms brace for retaliation as potential trade war looms

As Canada and Mexico fire back against new U.S. steel and aluminum tariffs, a wide range of Minnesota-made products could get hit in the retaliation.

Of specific concern to Minnesota are new levies that could have an impact on exports of pork supplied by state hog farmers, as well as new taxes on agricultural exports and prepared foods from the state's large food processing industry. Manufactured products like ATVs and motorcycles, drill bits and machine enclosures also face cost increases.

Economists say these and other companies could be wounded by Canadian and Mexican retaliation against the Trump administration's protective tariffs of 25 percent on imported steel and 10 percent on imported aluminum that became effective Friday.

Canada officially announced tariffs on hundreds of products that U.S. businesses export to their northern neighbor. The tariffs are scheduled to take effect July 1. Mexico said it will impose tariffs on "various products" but did not provide a specific list.

The E.U. has a long list of products slated for tariffs, but has not officially imposed it.

For now, the trade war is in its very early stages, trade observers said, so there is still time for the United States, Canada, Mexico and the European Union to reach a compromise. However, with each punitive action, prospects diminish.

"We haven't seen a real trade war since the 1930s when one ruined the world economy," said University of Minnesota professor Tim Kehoe, who consulted for Mexico on the North American Free Trade Agreement.

Steel and aluminum amount to "a relatively small amount of trade overall," Kehoe noted. "But it's not just the initial tariffs. It's the retaliation, then the retaliation to the retaliation. At this point, no one is backing down."

As tariffs move from threats to actions and those actions spark reactions, a cycle starts that poses risks to almost everyone, said Robert Kudrle, professor of international trade and investment policy at the University of Minnesota.

"I would say all Minnesota businesses should be concerned, from agriculture to high tech to health care," Kudrle said. "Everything could be swept up in retaliation."

The White House asserts that protective tariffs will drive business to America, particularly its manufacturing sector. In addition to the steel and aluminum tariffs, the administration is preparing to impose tariffs on many Chinese imports, including parts for electronic devices, a move vocally opposed by Minnesota's high tech sector.

The administration has also toyed with increasing tariffs on imported automobiles to drive business to domestic automakers.

The White House justified the steel and aluminum import tariffs and potential auto import tariffs on the basis of national security. The president had said he would exempt Canada, Mexico and the EU from the tariffs if they would come up with concessions to deal with what he considered unfair trade practices. But after delaying implementation for several months, he went ahead Friday.

Critics say punishing loyal military allies with protective tariffs makes no sense. "Canada has been an ally since before World War I," Kudrle said. "This really doesn't pass any smell test."

Minnesota's iron ore mining operators such as Hibbing Taconite, United Taconite, Northshore Mining and others, strongly support the steel and aluminum tariffs and insist they will level the competitive playing field and prevent the illegal dumping of underpriced steel into the United States.

U.S. Steel, which owns the Keetac and Mintac mining and taconite production plants on Minnesota's Iron Range, issued a statement Friday praising Trump's actions: "Unfairly traded imports from around the world have harmed our domestic steelmaking capacity. This action will restore jobs and restart idled steelmaking facilities to support our country's long-term ability to produce steel; a critical component to our national and economic security."

U.S. Steel spokeswoman Meghan Cox said during a phone interview Friday that the new tariffs on steel imports from Canada, Mexico and Europe should "increase demand" for its Minnesota ore, U.S. made steel and boost jobs on Minnesota's Iron Range.

Alexandria Industries, one of the largest aluminum extrusion companies in Minnesota declined to comment specifically on the new tariffs. While the company sources most or all of its ingots from U.S. suppliers, a company spokeswoman noted, "We are keeping a close eye on both the aluminum import tariffs and Russian sanctions. … We hope to have something good to say about this when the dust fully settles if that happens. The difficulty here is President Donald Trump is showing us that he may/may not change his rulings as he sees fit. There seem to be exceptions that have come up along the way."

Other Minnesota industries and businesses worry that the metal tariffs will hurt by increasing material costs or by sweeping in other economic sectors through retaliation.

"We remain concerned about any retaliatory efforts advanced by our trading partners in light of this recent tariff announcement by the administration," Beth Ford, chief operating officer of Land O'Lakes Businesses said in a statement to the Star Tribune. "Additionally, Mexico is the number one export market for U.S. dairy exports. Every dollar of dairy exports to Mexico supports an additional $2.50 elsewhere in the local economy."

Medical Alley, the state's major trade group for Minnesota's massive medical technology industry, does not yet see a threat to specific products on the Canada, Mexico and E.U. lists, said CEO Shaye Mandle, but there are "definitely concerns about raising costs of goods and materials broadly that could affect pricing and sourcing."

Agricultural giant Cargill called the Trump administration's action an invitation to higher prices for consumers and uncertainty for business owners and workers.

"The unilateral trade restrictions announced this week — in this case, on some of the United States' closest and most dependable trading partners — could have detrimental effects on consumers, workers and businesses in the United States and the affected nations alike," Devry Boughner Vorwerk, corporate vice president of global corporate affairs, said in a statement.

Austin-based Hormel Foods Corp. said it has structured its operations to minimize the impact of tariffs on pork and peanut butter. Even so, in the company's second quarter earnings call last week, chief executive Jim Snee told investors, "Given the uncertain impact of the tariffs on the pork industry, we are expecting modestly lower sales in our export business."

At the University of Minnesota, Kehoe said he believes the United States is a long way from the kind of trade war that destroyed the world economy in the 1930s. But the country now has "been stalemated in the initial battle of a trade war" with its allies.

"If it escalates," he said, "it is going to be very painful for Minnesota."

Jim Spencer • 202-662-7432