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China’s new tariff targets could resonate in Minnesota

August 3, 2018

WASHINGTON — On Friday, as China named 5,207 U.S. product categories worth $60 billion that soon could be subject to import tariffs of up to 25 percent, every Minnesota business that sells anything to China moved closer to feeling the sting of the trade war.

The Chinese were reacting to new threats from President Donald Trump to not only place tariffs on $200 billion worth of Chinese imports to the U.S., but also to raise the rate on those tariffs to 25 percent from 10 percent.

With the ante rising, China is running out of U.S. imports to tax because it sells so much more to Americans than it buys from them. In 2017, the Chinese sold $506 billion worth of products in the U.S. and imported just $130 billion in U.S. Products.

The enormous U.S. trade deficit with China, as well as China’s alleged theft of U.S. intellectual property and unfair restrictions on U.S. companies wanting to do business in China spawned the Trump tariffs. The White House believes the threat of tariffs can extract concessions from the overseers of the world’s second largest economy that will make it play fairer with the United States.

Friday’s list of U.S. products that might be taxed by China showed the Asian giant is not yet at that point. Prospective tariff targets ranged from refined sugar made from Minnesota sugar beets to ingots made from Minnesota iron to sausages stuffed with Minnesota pork.

Cereal products like those produced by General Mills, boots and “sports footwear” like those from Red Wing are also on the list. Wooden and metal doors and windows like those made by Minnesota-based Andersen Windows are there, too, along with electrical equipment, x-ray equipment, pumps and paper, all of which might be Minnesota-made.

That comes on top of China’s plan to tax U.S. soybeans. China is a major market for Minnesota soybean farmers.

Even as China runs out of U.S. imports to tax, it maintains some leverage, said Karen Donohue, who teaches about business supply chain and operations at the University of Minnesota’s Carlson School of Management.

“China can’t put tariffs on $200 billion worth of products,” she said. “But it can delay licenses [for U.S. companies wanting to do business]. It can increase inspections [of U.S. products].”

The Chinese can introduce another element into the fight, said U international trade professor Robert Kudrle. Nationalism.

“The Chinese are a very patriotic people,” he explained. “A lot of people are concerned that if the Chinese government suggests that purchase of U.S. products is not in the national interest, it could cut down on sales of U.S. products beyond the barriers created by tariffs.”

As the trade war heats up instead of winding down, each shot holds more potential for economic injury to Minnesota businesses, Kudrle said.

“We sell a number of things to China, including raw materials and agriculture,” he noted. “That clearly hurts us on the production side. Then we’re hurt on prices by our own tariffs on Chinese imports. In the short run, it is enormously disruptive.”

Jim Spencer • 202-662-7432

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