North American tariffs would spell disaster for Minnesota’s economy

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President-elect Donald Trump recently announced that, upon assuming office in January 2025, he plans to impose a universal 25% tariff on imports from Canada and Mexico and an additional 10% tariff on goods from China. While the scope of these proposed tariffs is vast, this analysis focuses on their likely impact on Minnesota’s economy, which is deeply intertwined with trade in North America.

These tariffs represent a stark departure from the United States-Mexico-Canada Agreement (USMCA) principles, which have facilitated trade among the three nations for years. The president-elect has framed the tariffs as tools to curb illegal immigration and drug trafficking. However, trade measures rarely operate in isolation — retaliatory tariffs from Canada and Mexico are almost inevitable, targeting U.S. exports in ways designed to inflict economic and political pain.

How would these tariffs affect Minnesota’s diverse economy, from Iron Range mining to Lake Superior ports to southern farms? And how would they ripple through household budgets and grocery bills? These are pressing questions for farmers, small business owners and families trying to make ends meet. Drawing on my research in international economics, I analyzed the potential consequences for Minnesota — and the findings are concerning.

Minnesota’s economy is highly dependent on trade with Canada and Mexico. In 2023, the state exported $6.6 billion to Canada and $2.8 billion to Mexico. Trade with Mexico alone supported over 91,000 jobs in the state. The proposed tariffs threaten to disrupt these critical economic ties.

The tariffs would drive up input costs for manufacturers. In 2023, 11.5% of materials for Minnesota manufacturers came from or passed through Mexico. A 25% tariff could increase input costs by 2.88%. Factoring in Canadian counter-tariffs, total cost increases could exceed 5.8%, undermining the competitiveness of key industries such as motor vehicle parts, agricultural machinery and precision instruments.

The agricultural sector would also suffer. Mexico is a major buyer of Minnesota grain and oilseed exports, purchasing over $1.5 billion annually, while Canada accounts for an additional $1.2 billion in agricultural trade. Combined, these relationships support over 20,000 jobs in farming and food processing. Retaliatory tariffs would likely slash revenues, jeopardizing vital markets for Minnesota’s corn, soybeans and animal feed.

The ripple effects wouldn’t stop with farms and factories. Tourism is another vulnerable sector. In 2023, Canadian visitors accounted for 57% of Minnesota’s international tourists, generating $113.4 million in revenue. A 10-20% decline in Canadian tourism spending due to tariffs could cost the local economy $11.3 to $22.7 million. While Mexican tourism plays a minor role, the broader effects on hospitality businesses could lead to staffing and operational challenges, compounding the economic fallout.

Households, too, would bear the burden. The average Minnesota family spends about $8,000 annually on goods directly affected by these tariffs. Supply chain disruptions could increase prices, adding an estimated $2,400 to annual household expenses. This increase would significantly strain families already grappling with inflation and other economic pressures.

The 2018-2019 U.S.-China trade dispute offers a cautionary tale. Minnesota farmers saw soybean exports to China — a key market — plummet due to retaliatory tariffs. While federal aid through the Market Facilitation Program provided some relief, the economic damage was evident. History warns us that trade wars often inflict more harm than they resolve.

The ripple effects extended beyond agriculture, straining local economies reliant on farming. Small businesses, from equipment suppliers to rural grocery stores, faced revenue declines as farmers tightened their budgets. Uncertainty in global markets also forced some exporters to delay investments, underscoring how deeply trade tensions can disrupt interconnected sectors.

National trade policies often target broad political objectives, but the president-elect’s proposed tariffs would disproportionately burden Minnesota’s economy. Businesses, workers and consumers across the state would face significant challenges as they adjust to higher costs and disrupted trade relationships. While adaptation is possible, the transition would likely come at a steep price, underscoring the need to carefully assess Minnesota’s specific vulnerabilities before implementing such measures.

To safeguard Minnesota’s interests, elected officials and business leaders must actively participate in shaping the conversation on trade. Proactive engagement in these conversations can help ensure the state’s unique challenges are recognized and addressed. Leaders can help safeguard the state from the fallout of misguided policies by advocating for trade measures that minimize harm to vulnerable communities. Minnesota has a proud legacy of resilience but should not be expected to shoulder the burden of poorly conceived policies. With so much at stake, speaking up and advocating for the state’s interests is crucial.

Bedassa Tadesse is a Professor of Economics at the University of Minnesota-Duluth.