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Minnesota a trade war battlefield

ST. PAUL — Minnesota is a battlefield in a war pitting the United States against trading partners.

President Donald Trump on Friday, July 6, tacked 25 percent tariffs on $34 billion of goods China sells in the United States. Trump says the tariffs eventually may cover up to $550 billion worth of Chinese products.

China responded by slapping its own tariffs on American goods to be sold in China.

"It is certainly much more threatening situation than I have seen in my lifetime," professor Robert Kudrle of the University of Minnesota said.

Kudrle, with the university since the 1970s, said soybean producers are on the front line, with prices already plummeting as China singled out that crop for its initial countermeasure to Trump's tariffs.

China already is turning to Brazil for soybeans, Kudrle said.

Tariffs on Chinese goods soon will be felt in aisles of stores like Wal-Mart and Target, with shelves filled China-made products.

"So far it has not hit consumers," said Kudrle, an international economic relations expert. "That is what is going to happen next."

Economists are not predicting how much the trade war will cost Minnesotans. The impact will vary across the state.

Steel and aluminum tariffs were the first Trump enacted, with the intention of helping people like Iron Range taconite miners. In the past few years, China has dominated the world steel business, but Trump wants to turn that around with more northeastern Minnesota taconite pellets being turned into steel.

That is good for rangers, retired professor Anthony Barrett of College of St. Scholastica in Duluth said. Miners, related businesses and others in northeastern Minnesota will benefit from Trump making Chinese steel more expensive, he said.

But soybean farmers and others around the state will lose money.

"There are gainers in Minnesota and there definitely are going to be losers in Minnesota," Barrett said.

Soybean prices have dropped 20 percent since tariffs first were discussed, President Michael Petefish of the Minnesota Soybean Growers Association said, and are at their lowest levels in a decade.

Soybeans are Minnesota's top export, $2 billion annually. China is the largest importer of Minnesota soybeans.

"When agriculture prospers, entire communities profit," Petefish said.

Trump came into office last year complaining about what he considered bad trade compacts with other countries. He promised to put America first and renegotiate the deals, or throw them out altogether.

Besides what he considered unfair trade pacts, he also complained that China has stolen American companies' technological secrets.

Executive Director Gabrielle Gerbaud of the Minnesota Trade Office said it is too early to know specifically how Minnesota will be affected since many of the tariffs started in recent days.

When sales figures are released in early October, the Department of Employment and Economic Development will have the first hint of trade war impacts. A better reading will come early in 2019, Gerbaud said.

Canada, China, Mexico and European Union countries are Minnesota's top trading partners.

Mexico, for instance, buys a lot of American pork, while American boat sales are expected to be the most affected product headed to Canada. China is putting tariffs on several agriculture products.

Some business officials are asking Gerbaud's department if they should proceed with exports. "I hear the anxiety, I hear the worry. Everybody is waiting."

For the time being, she advises businesses to go ahead as if there was not a trade war.

"Right now what we are trying to do is to be prepared," the state official said.

Barrett said it is clear on the Iron Range that Trump tariffs are helping. Still, he added, "everyone in America, including people up on the Iron Range will pay a little bit more for products."

Kudrle said this trade dispute is different than others.

Usually, he said, Congress takes the first trade action, often pretty aggressive, with the president trying to "smooth over those disputes."

In this war, however, it is the president launching the campaign. Some in Congress, especially Democrats, are urging him to step back, but they have not shown a united front.

Even some Republican-leaning groups like the U.S. Chamber of Commerce encourage Trump to rethink his tariff battle.

"No one wants a trade war," Minnesota chamber President Doug Loon said. "We must protect American innovation and our entrepreneurs, but not alienate key trade partners, especially our immediate neighbors, Canada and Mexico."

Federal Agriculture Secretary Sonny Perdue has said that Washington will help prevent farmers from being harmed.

But Kudrie has doubts. "I cannot believe that the government could hold the whole agriculture sector harmless."

It is one example, the professor said, that Trump and his allies "are flying by the seat of their pants" as the trade war begins. "I think we are in for a tough ride."

Minnesota exports

Minnesota exports products worth nearly $500 million to countries that could be involved in a trade war with the United States.

Here is a look at top exports to areas involved in the war and their annual value:

• Canada, $227 million. Boats, canoes, etc., $38 million. Baked goods and puddings, $30 million. Uncoated paper, $29 million.

• Europe, $106 million. Motorcycles, etc., $40 million. Edible beans, $38 million. Aluminum alloy products, $6.3 million.

• China, $99 million. Whey from milk, $38 million. Soybeans, $26 million. Animal internal parts, $10 million.

• Mexico, $67 million. Fresh pork, $33 million. Frozen pork, $7.3 million. Fans, $4.3 million.

— Source: U.S. Chamber of Commerce

Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.