Minnesota agriculture, commerce and industry are taking their lumps in the wake of President Donald Trump talking tough on trade and imposing import duties and tariffs with key trading partners – particularly China.
Farmers are increasingly turning to an emergency federal financial aid program for relief, but much more substantial, long-term relief is in sight. The presidents of the US, Canada and Mexico recently announced they have reached an agreement to institute a new NAFTA – renamed the United States-Mexico-Canada Agreement, or USMCA for short.
Minnesota farmers who depend on trade in “pork and beans” – hog and soybean farmers – are particularly hard hit, Minnesota Farm Bureau Federation President Kevin Paap told Watchdog.org.
“Federal financial aid is certainly helpful and welcome, particularly in certain sectors of the agricultural community that are more acutely impacted by the tariffs, but it's one-time money as far as I can tell,” Doug Loon, president of the Minnesota Chamber of Commerce, said.
A specialist when it comes to international trade law, Neville Peterson LLP partner John Peterson pointed out that the law firm hasn't seen any sign that the Trump Administration will extend emergency financial relief beyond the farmers and growers affected by tariff retaliation on the part of foreign trade partners.
“We've seen no inkling that similar programs will be provided for other industry sectors," Peterson said. "It would appear trade wars are not as easy to win as the president supposes.”
The emergency federal financial relief is to be given to U.S. farmers and ranchers whose businesses are suffering as a result of retaliatory trade tariffs. The amount of aid is based on actual production however, Paap said. That means that Minnesota farmers won't be able to apply until they harvest their current, fall crops. Eligible dairy and hog farmers, on the other hand, have been encouraged to apply to the program in order to avoid a backlog of applications, he explained.
Some 30 percent of Minnesota's soybean crop is typically exported to China, but the tariffs are hurting, Paap said in an interview.
“I know that every six out of 10 rows of soybeans I planted last year were going outside the U.S. – it could have been to Canada, to Mexico, to China or to Japan,” he told Watchdog.
“I lost $2 a bushel compared to last March. That's a significant change," Paap said. "My soybean price in March for beans in the field was $9.70 bushel, that's cash price at my local elevator on March 6. [In late September], it was $7.64,”
The average soybean yield in Minnesota is 50 bushels per acre, an area about the size of a football field.
“Tariffs can have positive and negative impacts, but essentially they're a tax,” Loon said. “Either that tax is paid for by consumers or by businesses along the value chain.”
In the short term, trade tariffs will raise costs for U.S. businesses and cut their profits. They'll then result in increased prices, which will reduce consumers' purchasing power and slow the economy, Peterson explained. That's particularly the case for businesses involved in the intermediate goods trade.
“A manufacturer can't simply find a new qualified supplier right away. Nor does the manufacturer want to switch suppliers if the tariffs go away after, say, six months,” he said. “The uncertainty of duration makes long-term planning difficult. In the short to medium term, U.S. firms are more likely to be hurt than Chinese ones.”
It can take a significant amount of time until supply chains adjust to the price disruption that results from trade tariffs, Loon added.
“For example, a manufacturer that depends on a Chinese company for a particular component now needs to find a way to replace that component because of the higher cost that results from the tariff," he said. "Or a soybean producer in Minnesota winds up losing their market in China.”
Loon pointed out that Minnesota is a “very trade-dependent state. Whether it's a multinational corporation, one of the many supply chain partners they rely on, or a small or medium-sized business, they're very likely to be actively engaged in the global marketplace, he explained.
Canada and Mexico combined account for around 48 percent of Minnesota's annual agricultural exports. More broadly, when you add in the European Union, Canada, China and Mexico account for 80 percent of total trade statewide, Loon noted.
“So when you put all those together, it's pretty significant, and each one has its nuances,” he said.
Trade via international markets is the real safety net for Minnesota and U.S. farmers and ranchers, Paap said. In that respect, China, along with Canada and Mexico, are very important, he added.
“I like to tell our members to remember three numbers: 24, 24 and 24. NAFTA is more than 24 years-old now. Almost 24 percent of our [Minnesota's] agricultural exports [by dollar value] go to Canada, and almost 24 percent go to Mexico. That's why getting this trade deal done with Canada and Mexico is very important, as is our trade with China.”
As president of the Minnesota Chamber of Commerce, Loon would prefer to see Pres. Trump and administration rely primarily on negotiations and diplomacy rather than import or export duties and tariffs.
“The end game should be new and better trade agreements that are designed to level the playing field and remove tariffs and non-tariff barriers," he said.