NAFTA, Minnesota and what comes next
The Trans-Pacific Partnership is dead, and the North American Free Trade Agreement already appears to be on life support. Better known as TPP and NAFTA, much has been written and said about the national implications of these trade deals.
But what does Minnesota stand to gain — or lose — if President Donald Trump follows through on stated plans to tax Mexican imports and renegotiate NAFTA with Canada?
"Any kind of protectionism will help the U.S. steel industry and therefore help northern Minnesota," said Tony Barrett, professor of economics at the College of St. Scholastica. "Then as an economist ... any kind of protectionism is going to make everything cost more."
Experts in the state have mixed views on NAFTA, which has kept trade between the U.S., Canada and Mexico largely free of tariffs and border taxes since 1994.
The one common thread among the lovers and haters of free trade agreements the News Tribune spoke with is that there probably shouldn't be any sudden moves, and not everyone is going to be a winner.
"Free trade helps us all, a little bit, but it hurts certain industries severely. (Manufacturers) shut down and we get slightly cheaper clothing and electronics," Barrett said. "Now if we go to protectionism, you're flipping that. Everyone's going to pay a little bit more, and certain people will gain a lot."
In 2015, Minnesota imported a combined $10.6 billion in products from Canada and Mexico and exported $6.7 billion worth of goods to those countries.
"Minnesota is a really strong state economically," said Robert Kudrle, a professor and researcher of international trade at the University of Minnesota Twin Cities. "We do not need to fear international trade in my view."
Where TPP would have helped open Asian markets for Minnesota's agricultural exports, Kudrle said, NAFTA has intertwined this continent's economies.
Take Minnesota's dependence on duty-free Canadian oil, for example. The state's two refineries can process about 379,000 barrels of crude per day, says the Energy Information Administration. Just 60,000 of those daily barrels come from North Dakota, according to a report from the Legislature in October.
If taxes increase on Canadian oil imports — the normal tariff is $0.52 per barrel — the price of gas, diesel and jet fuel in the state could increase, leading to an increase in the costs of other goods and services.
"This isn't just Minnesota," said Cosette Creamer, a professor of political science at the U of M. "Roughly a third of U.S. imports of crude oil and products come from Canada — nearly as much as all OPEC countries combined. ... I would imagine that this is going to be a key element of any re-negotiations."
Due to its proximity, Canada is a much bigger trading partner for Minnesota than Mexico, though our southern neighbor bought $129 million worth of iron and steel from the state in 2015. Canada imported $157 million in iron and steel from Minnesota in 2015.
"NAFTA hasn't been a problem for us — it opened up new markets," said Kelsey Johnson, president of the Iron Mining Association of Minnesota. "Part of the reason we're successful is we're competing globally. We need to make sure we're evaluating all the possible options for us to sell our product that are beneficial for us and everyone else involved."
Yet change, in whatever form it takes, seems imminent.
Changes to come
Having already seen the White House raise the specter of a 20 percent tax on Mexican imports amid a cancelled visit by the Mexican president, the future of NAFTA renegotiations remain uncertain.
There are a few cheerleaders for changing the status quo for Minnesota, however.
"As a business organization, we'd be pleased to see (Trump) re-enter negotiations, whether in multinational groupings or more of a bilateral approach," said Doug Loon, president of the Minnesota Chamber of Commerce. "As long as we are working to level the playing field and working to create a competitive environment so we can compete fairly."
Though the president can unilaterally set tariffs and even scrap NAFTA completely without congressional action, he's also got support from Northeastern Minnesota's U.S. Rep. Rick Nolan.
"NAFTA has been a disaster for American workers and manufacturing companies," Nolan, a Democrat, said in a statement that echoed his views from last year's campaign. "To be clear, American workers can compete and win anywhere in the world under 'fair trade' regulations that require every nation to live up to the same worker health, safety and environmental rules, with fair wages and benefits."
It's those points that also rile many unions.
"The NAFTA agreement meant manufacturing jobs being sent to Mexico, where the workers were paid poor wages and worked in terrible conditions (by our standards)," wrote Alan Netland, president of the North East Area Labor Council, in an email. "Any trade agreement that encourages companies to offshore jobs to other countries should be rejected. If NAFTA can be strengthened to demand standards in line with ours here in the U.S. then it will help workers in Minnesota."
At the heart of all this talk on trade is jobs, at least in the hearts and minds of most Americans. Changing how we do business with other countries can help or hurt prospects for manufacturing and other industries that have seen some recovery since the recession but not at levels Trump is promising.
Delivering on those promises — especially in the face of technological advances that displaced many of those jobs more than offshoring did — won't be an easy task.
Speed and accuracy
Barrett at CSS cautioned that moving too fast toward protectionism could hurt the largest part of the American, and Minnesotan, economy — consumer spending.
"The key word is sudden," he said. "Wages take a while to adjust; they're always behind increases in inflation. It would put a squeeze on the average consumer."
U of M professor Kudrle agreed that any overhaul ought to be approached with caution.
"It's one thing to try to get some changes around the edges, but if you go into this full blast — trade, at least in the eyes of an economist, is not a zero-sum game," he said. "It's a positive-sum game."
The state's top business advocate, Loon, says protectionism ought to be avoided in order to boost Minnesota exports — which have been on the decline lately.
"Our products and services are sought after worldwide, and we know 95 percent of the world's consumers live outside the borders of the United States," he said.
However all these players might try to sway NAFTA negotiations to Minnesota's benefit, it's all eyes on the president for what comes next.
"It's the right of this president and future presidents to put their mark on on trade agreements," Loon said. "We'll see how that affects us."