The pandemic-triggered recession has dealt yet another blow to the state’s economy, with a punishing 18% drop in Minnesota exports for the second quarter of this year.
That’s not all due to the pandemic, of course. President Donald Trump’s ongoing trade war, with its tit-for-tat tariffs against what had been some of the nation’s biggest trading partners, has played a role. Together, the recession plus tariffs have made for a brutal one-two punch that sent U.S. exports even lower than Minnesota’s, with a full 30% drop.
“We all felt our stomachs lurch a bit with that report,” Steve Grove, state commissioner of Employment and Economic Development, told an editorial writer.
Trade has long played a critical role in Minnesota’s diversified economy, helping to insulate it a bit during recessions and providing a turbo boost when times improved. But no one was prepared for a reshuffling of the deck to the extent seen in the second quarter.
Among what had been Minnesota’s three largest trade partners, trade with Canada was down 16%, while trade with China dropped 7%. Trade with Mexico collapsed by 40%. And the number for China may be a bit deceptive. Minnesota trade with tiny Taiwan shot up 56% even as trade with nearly every other nation dropped.
Louis Johnston, an economist and professor at Minnesota’s St. John’s University, has an explanation: “If you’re a Chinese company, you move your stuff to Taiwan to avoid the tariffs.” It’s one of many reasons, he said, why trade wars generally are a lose/lose for all involved. “They reduce trade overall — and the tariffs wind up benefiting some, hurting others — but in the final analysis it makes all of us worse off.”
One of the biggest problems with tariffs, Johnston said, is that higher-value products — such as those produced by 3M, medical device companies and others — are particularly hurt because they have to pay more for raw goods. It’s possible, he said, that Minnesota’s economy could be bifurcating.
One part, such as the taconite producers on the Iron Range, do best with trade restrictions that benefit them, along with certain subsidized agricultural producers. The other segment, those producing higher-value finished goods, he said, do better under free, open trade.
“Once a pattern like that sets in, it can be hard to unwind,” Johnston said. In that sense, he said, Trump’s trade policies could wind up having long-term effects.
Grove said there is not yet enough evidence of such a pattern, but acknowledged that the short-term pain of the imbalance is real. “Our goal is to get all of Minnesota’s economy back up and running as much as possible as soon as possible,” he said. That effort was aided by recent unemployment numbers that show the state’s jobless rate fell in August to 7.4%, the third consecutive monthly drop.
The recovery continues to be uneven, and even in those improved jobless numbers is evidence that people of color and those in lower-income occupations are being disproportionately affected.
The best remedy is to tackle the most harmful effects of the trade war and step up efforts against COVID with a national strategy devoid of political polarization.