Canada on July 1 announced it has moved forward with retaliatory measures against U.S. steel and aluminum tariffs, slapping $13 billion in its own tariffs on American exports. More than 40 U.S. steel products will see tariffs of 25 percent. (Iron ore production from the state’s Iron Range does not appear to be affected as this tariff applies more to finished steel and aluminum ingots and products). Also, a 10 percent tariff will be levied on more than 80 other American items (complete list available here), including the following that are made by Minnesota-based companies:
- Roasted coffee
- Maple syrup
- Sugar confectionary
- Chocolate in blocks/slabs
- Glues and adhesive
- Toilet paper
- Lawn mowers
Some companies that may be affected by these tariffs are Select Comfort, Toro Cos., Hormel, Cargill, Land O’Lakes, General Mills and Polaris.
Canada’s tariffs also affect beef. Meanwhile, Canada and Mexico this week are expected to enact tariffs on pork (a major Minnesota export) and milk (Mexico), and China is planning on Friday to implement a 25 percent tariff on soybeans (a major Minnesota crop) as well as 544 other U.S. products valued at $34 billion.
These actions follow the European Union’s initial duties worth $3.2 billion, which took effect June 22. Most of the duties amount to 25 percent, and include a variety of U.S. products, including motorcycles, boats, whiskey and peanut butter.
All of the tariff’s and trade restrictions enacted or threatened by other countries are in retaliation to President Trump’s decision to impose levies on imported steel and aluminum products on several countries for “national security reasons, and impose tariffs on a range of goods produced elsewhere. The most significant of these are $34 billion in tariffs on imported machinery, medical devices, auto parts and other goods from China beginning at 12:01 a.m. Friday.
The apparently imminent trade war threatens to disrupt commerce around the globe, and the consequences are already being felt. Most estimates and experts say more tariffs and an all out trade war will hurt several industries and the overall global economy, in addition to that of the U.S.
For example, with automobiles, an analysis citing data from the Peterson Institute for International Economics figures 195,000 jobs will be lost over one to three years among U.S. automakers and dealers. G.M. warns of of such negative consequences as well.
On the farm front, researchers at the University of Illinois and Ohio State University estimate that over four years, a 25% tariff on U.S. soybean imports by Beijing alone would result in an average 87% decline in income for a midsize Illinois grain farm. The loss would pressure farmland prices, they say, prompting a more than $500,000 decline in the farm’s net worth by 2021. Dairy farmers are also being affected.
Other financial and economic experts, however, say Trump’s moves are not about specific goods and services as much as they are about correcting an overall trade imbalance with certain countries and regions, such as the European Union.
“The real message here — and I think he’s right about this, but it’s hidden in the presentation and sound and fury — is fundamentally European macro-economic policy… is that Europe is free-riding global demand, running huge trade surpluses and nobody has really stood up credibly to that ideology until Trump,” Eric Lonergan, macro fund manager at M&G, told CNBC this week.
A case in point for Minnesota is Canada, the state’s largest export partner. In 2017, Minnesota exported $4.28 billion worth of products to Canada, the most of any country. Mexico came in at $2.44 billion and China was third at $2.42 billion, according to Minnesota’s Department of Employment and Economic Development (DEED). The strongest gains in Minnesota exports to Canada last year were in the areas of iron ores and machinery.
On the flip side, however, Minnesota imports more than $10 billion worth of Canadian goods. This appears to be a trade imbalance of nearly $6 billion in favor of Canada. But it’s apples to oranges, given most of what Minnesota acquires from that country is not in goods and services: it’s crude oil and natural gas. Minnesota gets 75 percent of its crude oil from Canada, and a tenth of its power comes from hydropower plants in Manitoba.
This points out the difficulty in assessing whether a “trade imbalance” is a bad thing. Several business leaders point out that, while from a macro economic viewpoint a trade imbalance favoring another country over the U.S. seems negative, it’s quite the opposite due to the nature of free markets and capitalism. Manufacturers have adapted by sourcing foreign made parts to make U.S. products more affordably. This includes steel, aluminum, circuit board components and more.