Mexican border tax could throttle Minnesota farmers

President Donald Trump signs an executive order
President Donald Trump signs an executive order for border security and immigration enforcement improvements, Wednesday, Jan. 25, 2017, at the Homeland Security Department in Washington.
Pablo Martinez Monsivais | AP

The potential trade war that could follow President Donald Trump's proposed 20 percent tax on Mexican imports bodes poorly for Minnesota businesses — especially farmers.

Trump has floated the tax as a possible funding mechanism for his massive wall along the U.S.-Mexico border, which some experts say could trigger a backlash from Mexico.

"By imposing a tariff on imports, you could trigger a retaliation against U.S. exports, particularly Minnesota exports to Mexico," said Doug Loon, the Minnesota Chamber of Commerce president.

There's a lot at stake: Minnesota exports to Mexico totaled $2.4 billion in 2015. Mexico was the state's second-biggest export market, behind Canada.

Minnesota's top exports to Mexico include machinery, food, vehicles, plastics, and iron and steel products.

The state's farmers also sold about $800 million in agricultural commodities like corn and soybeans to Mexico.

One of the impacts of retaliation by Mexico could be lower prices for farmers.

"If we get in a trade war with Mexico, farmers are going to learn that they're on the front line of that war," University of Minnesota grain marketing economist Ed Usset said. "They'll feel it first."

New Vision Coop in southwest Minnesota sold about $30 million in corn and soybeans to Mexico last year, said Keith Newman, the coop's grain department manager.

Newman agrees with some of Trump's goals — including that there may be a need for a border wall — but he wants the president to consider all the impacts his policy could have.

"I think he just needs to step back, slow down and take into consideration how some of these policies that he's talking about is going to affect U.S. agriculture and the overall U.S. economy," Newman said.

Farmers have little capacity to absorb further price drops. Grains and other commodities already fetch less than it costs to produce them for many farmers. And there could be long term damage to the agriculture sector. If Mexico finds new suppliers, it may be hard for the U.S. to win back that nation's business in the future.

Plus, any unsold products that had been destined for Mexico would boost stockpiles in the U.S. That additional supply would put downward pressure on prices unless it can be sold elsewhere.

"It's just that much more grain in the U.S. that has to find another destination or another home," Newman said.

Farmer's aren't the only ones with business to lose: Talk of a tariff also has the attention of Minnesota's medical device industry.

Many of those companies have facilities in Mexico, and they may move products back and forth across the border during the manufacturing process. They sell products in Mexico, too.

"Mexico is certainly a country with significant presence of medical device companies, and so anything related to trade with the U.S. or tariffs on imports or exports is something that we're going to be concerned about and want to be looking closely at," said Shaye Mandle, CEO of Medical Alley, a trade groups whose members include big medical device makers in the state.

A 20 percent tariff on products coming from Mexico would hurt consumers, too, Loon said.

They'd get hit by higher prices for everything from avocados to automobiles.

"A tax basically on imports to raise money for whatever purpose, that many times will turn into a tax on U.S. consumers," Loon said. "And that probably will not be well received."

The hefty tax on Mexican imports could be part of a comprehensive tax reform package that Trump and Congress will work out, the White House said. But there was great ambiguity about the proposal.

White House officials say the tax is just one possible way Trump could finance the wall.

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