'We’re prepared to deliver': Gov. Tim Walz to mend ties abroad as U.S.-China trade war escalates
The trade mission comes as tariffs on Chinese products grow and as farmers report higher bankruptcy filings due to limited markets.
ST. PAUL — Gov. Tim Walz on Friday, Sept. 6, departed on a trade mission with news of a 4% hit to the state's exports and the worries of Minnesota businesses and farmers on his mind.
A day before he left for Japan, Walz told reporters that the move is part of a plan to maintain relationships with the state's trade partners and build new ones in spite of top-level federal trade policy moves that have had a tough impact in Minnesota.
The first-term Democratic governor said he expected some of Minnesota exporters, like medical device manufacturers, would be able to survive the trade fights long-term, but farmers could see their markets yanked away more permanently as the fights continue.
“The medical side, medical devices and some of those things that we do, we just do that better than anybody else and they’ll continue to trade with us,” Walz said. “The ag piece does worry me. And part of this trip is to ensure them that we’re prepared to deliver."
The Democratic governor left for his first trade trip to Japan and South Korea days after federal officials escalated a more than a year-long trade war between the U.S. and China, hiking tariffs on billions in dollars of additional goods. And while talks were ongoing, U.S. businesses and consumers prepared to bear the brunt of more of that financial hit.
In Minnesota, top exports saw the impact of earlier rounds of retaliatory tariffs. Economic development officials reported a 4% dip in the state's exports between April and June of this year compared to that timeframe a year prior.
Agriculture was among the industry's hardest hit by the latest round of tariffs and their second-quarter exports reflected the losses as the state's top-three buyers of Minnesota products remained locked in trade deal negotiations and stalemates. In rural Minnesota, the toll of those hits became more pronounced as farmers filed bankruptcy at a pace likely to eclipse the rate of years past.
“It’s devastating to the farmers, to the farm economy,” Minnesota Farmers Union President Gary Wertish said of the Trump administration's efforts to strike a fairer trade deal with China. “Trying to take China on all by ourselves is not a winning strategy and farmers are bearing the brunt of that. But now it’s going to start spilling out into the rest of the economy too.”
The U.S. on Sunday, Sept. 1, placed a 15% tariff on $110 billion of Chinese goods. And Minnesota businesses that sell or use those goods had to decide whether they could afford to eat the cost or if they would have to pass it on to consumers. The new tariffs could cost an American family $300 a year, according to a report from JPMorgan Chase. And that amount could jump to $1,000 in additional expenses a year if the U.S. moves forward with another round of tariffs on Chinese imports.
"Bottom line is there is going to be an impact on the consumer of this," Doug Loon, president of the Minnesota Chamber of Commerce, said. "Not all costs can be absorbed, some will have to be passed on and that could have an inflationary impact on the broader economy but certainly a pocketbook impact on the consumers and families in Minnesota."
President Donald Trump on Friday appeared to reinforce his position that the latest round of tariffs on Chinese goods and continued negotiations with China were the right approach to reaching a fair deal for the U.S.
Minnesota exports take financial hit
Japan imported $1.5 billion in Minnesota goods last year, short of just three other countries: Canada, China and Mexico. The three top-importing nations bought a combined $10 billion in Minnesota goods in 2018, per the state Department of Employment and Economic Development.
But with the ratification of a new trade agreement between the U.S., Mexico and Canada ongoing and a long-term tit-for-tat trade war with China still being waged, uncertainty drove down the demand for Minnesota goods. Canada imported 9% less between April and June as compared to that quarter in 2018, while China took in 3% fewer Minnesotan exports. And Mexico imported 1% fewer goods from Minnesota than it did a year before.
By contrast, Japan boosted its imports of Minnesota products by 6% in the second quarter.
“Countermeasures on U.S. exports by major trading partners have created business uncertainty in trade this quarter,” DEED Commissioner Steve Grove said in a news release.
Loon, with the state Chamber of Commerce, agreed that businesses and farmers crave certainty, which became harder to find amid a background of tumultuous trade fights.
“Trade wars like this, tariffs, counter-tariffs create uncertainty and the markets don’t respond well to uncertainty,” Loon said.
Walz will spend Sept. 7-10 in Tokyo at the 51 st Midwest U.S. Japan Association Conference then he'll leave for Seoul, South Korea on Set. 11. Korea, the state's sixth-largest importer of Minnesota goods brought in $1 billion in exports from the state last year.
Business and agriculture leaders said they were glad to see Walz rebuild trust with foreign trade partners, but felt that alone wouldn't solve market access issues for Minnesota.
"At a state level we can only do so much and we appreciate Gov. Walz trying to reestablish what he can, but we still need to get that 800-pound gorilla off our back and that's at a federal level," Wertish, of the Farmers Union, said.
Farm bankruptcies jump
Chapter 12 bankruptcy filings in Minnesota jumped 44% between 2017 and 2018 and that figure appeared likely to climb again in 2019, as bankruptcy filings in the first seven months of 2019 came in 80% higher than in that timeframe a year prior. That’s according to statistics from the United States Bankruptcy Court for the District of Minnesota.
Chapter 12 is designated for family farmers and family fishermen under distress that write a plan to pay back creditors in three to five years. Others skipped bankruptcy and decided to sell the farm altogether.
"There’s no doubt about it. There are some serious financial and emotional challenges out there in agriculture," Kevin Paap, president of Minnesota Farm Bureau, said. “Everything is kind of stockpiling on it feels like. Not only are we losing our export markets, but we’re also losing our ethanol markets. So it’s kind of that double whammy on both sides of the farm gate."
Paap and Wertish said they'd heard from farmers, lenders and farm bankers that anxiety in farm country is widespread ahead of this year's harvest. But the increase in bankruptcy filings even before harvest time raised concerns about what would lie ahead this fall.
Minnesota Farm Bureau and Minnesota Farmers Union groups are both set to travel to Washington, D.C. next week to speak with members of Congress about potential paths forward. Paap and Wertish both said they hoped to engage in conversations about reaching and ratifying trade deals and re-opening markets, as well limiting the use of small refinery hardship waivers , which have curbed the demand for corn to make biofuels.
“We have to take the politics out of it," Wertish said. “If the policies are having a disastrous effect on us we have to speak up.”