The high U.S. dollar smothered any chance for export growth during the second quarter for Minnesota companies — especially with Canada, the state’s largest trade partner.
Exports to Canada fell 21 percent to $1.13 billion in the quarter.
“Wow, 21 percent. That’s a big chunk,” said Bob Kill, CEO of the manufacturing consulting firm Enterprise Minnesota.
Canada is the “go to” country of choice for both large and small Minnesota manufacturers because it’s the easiest, in terms of transportation, language and culture, in which to do business outside the United States, he said.
“But the exchange rate has changed very dramatically and quickly in the last nine months and that is affecting both large and smaller manufacturers,” Kill said.
Besides the U.S. dollar, the pullback in Canada’s own ailing oil industry has hurt export sales for several Minnesota clients, he said.
Overall, even though Minnesota performed better than the nation as a whole, shipments dropped 3.8 percent to $5.2 billion in the quarter ended June 30 compared with a year earlier, according to the Minnesota Department of Employment and Economic Development. Total U.S. exports fell 5.6 percent, with 38 states reporting drops in shipments.
The state report noted that smaller trading partners such as Belgium, Singapore and the United Kingdom also saw shipments from Minnesota slide — but none as severely as Canada.
But state officials also noted that trade to some regions grew during the quarter.
For example, Commissioner Katie Clark Sieben noted that trade to Europe grew 5 percent overall. Shipments to Asia as a whole fell slightly, but shipments to China rose 2 percent to $594 million and exports to Japan grew 2 percent to $306 million.
In addition, exports to Mexico jumped 5 percent to $575 million, and trade to Middle Eastern countries rose 23 percent to $106 million.
But the growth in other areas could not overcome the losses in trade with Canada.
The high U.S. dollar and effect of negative currency translations have dampened exports and pinched profits for many Minnesota manufacturers, including 3M, Pentair, Toro and Donaldson Co.
Some firms, such as Arctic Cat, have been particularly hurt. About one-third of the company’s ATV and snowmobile sales come from Canada.
Slow recovery predicted
The high U.S. dollar has hurt so many U.S. manufacturers that Chad Moutray, chief economist for the National Association of Manufacturers, predicted in June that “export growth is expected to remain sluggish” for some time. He predicts U.S. exports will rise by just 0.4 percent between June 2015 and June 2016.
In Minnesota, some product segments managed to stay strong during the second quarter despite the high U.S. dollar.
While exports of meat (including turkey), electrical machinery and vehicles shrank during the quarter, medical and optics shipments rose 5 percent to $954 million amid strong demand from Taiwan, South Korea and Japan.
Minnesota’s largest product category — machine exports — nudged upward by 1 percent to $919 million, while electrical machinery, the state’s second largest export category, fell 2 percent to $642 million.
Smaller export categories of plastics and iron and steel rose a respective 1 and 2 percent during the quarter. The rise in iron and steel exports took some officials by surprise, given that industry’s difficulties with dramatically underpriced exports from China, South Korea and other nations.