How Minnesota would benefit — and how it would suffer — if Congress approves the Trans-Pacific Partnership

WASHINGTON — This week, House Democratic and Republican leaders entered the final stretch to gather the 217 votes needed to pass Trade Promotion Authority (TPA), legislation that would pave the way for major international trade pacts, like the Trans-Pacific Partnership (TPP). That agreement — a longtime goal of President Barack Obama — would place the United States and 11 other Pacific Rim nations in an expanded free trade relationship, and it could have potentially huge impacts on Minnesota workers and businesses.

TPP is a complex pact that would do a number of things, and ambitiously aims to unite a diverse group of 12 countries into a system with shared standards on labor, environmental protections, and intellectual property. A key selling point for proponents — and point of contention for opponents — is that TPP would reduce export tariffs among signatories, much as the landmark North American Free Trade Agreement did in 1994.

That would have huge economic repercussions nationally, but it could also have a disproportionate impact on Minnesota. The state exported over $10 billion in goods and services to TPP countries in 2013 — nearly half its total — and it has deep economic ties to TPP signatories like Japan, which bought more than $2 billion in Minnesota goods and services last year. Comparatively, Wisconsin — whose economy is roughly the same size as Minnesota's — did $1.4 billion worth of business with Japan. Vietnam, an emerging economy and key TPP signatory, bought $110 million in Minnesota exports, double those of Wisconsin and roughly triple those of Michigan.

Despite vocal opposition from congressional Democrats, complex negotiating hurdles, and the uncertain fate of TPA, TPP nevertheless remains a real possibility. If it goes through, here’s who’s likely to come out on top in Minnesota in the new trade order — and who might get left behind.

The winners

Bigger, export-oriented agriculture companies and producers
A common refrain of TPP supporters is that 95 percent of the world’s eaters live outside the United States, and that TPP would open up many foreign markets to U.S. food products. Major food and agriculture companies and interest groups, including Minneapolis-based Cargill, have been vocally supportive of TPP from the get-go. If TPP were established, those interests would undoubtedly benefit.

Minnesota, after all, is America’s fourth-biggest agricultural exporter, and agricultural products — from soybeans to poultry — make up a huge chunk of the state’s exports. Reduced tariffs would have a large impact on big-time agricultural operators in the state. Take pork products: Minnesota is the country’s top pork producer after Iowa, and Japan has a big appetite for pork: It’s the top destination for U.S. pork after Mexico. Right now, those products face export tariffs of up to 20 percent in Japan. Slashing such tariffs is key to the appeal of TPP for big companies.

As a result, some Minnesota ag trade groups have lobbied hard to pass TPA and TPP in Washington. In fact, the issue is such a big priority that National Pork Producers Council President Ron Prestage has promised retribution for members of Congress who threaten the deal. “If House lawmakers vote against TPA, we’ll hold them accountable,” he said in a statement.

High-tech manufacturingIn many ways, American manufacturing was significantly hurt by NAFTA, and opponents of TPP are worried that it will continue to chip away at low-skill manufacturing jobs in the U.S. Minnesota, however, is less reliant on those kinds of jobs than other states, and is a national leader in manufacturing of goods like medical technology and electrical equipment — products that require highly skilled workers that are unlikely to be threatened by TPP.

President Obama and other politicians love talking about re-fashioning the American economy in the mold of high-skill workers engaged in high-tech manufacturing. In Minnesota, that’s largely a reality already. That’s what makes some, like Robert Kudrle, an international trade expert at the University of Minnesota, bullish on the potential for positive outcomes from TPP for the state.

Kudrle calls Minnesota a “microcosm of the top end of the American economy,” and in a “really strong position” to benefit from TPP because of its high-tech manufacturing, agricultural strength, and strength in services. Medical equipment, for example, accounts for 13 percent of Minnesota exports.

Rep. Erik Paulsen, a leading free-trade advocate in the House, has spotlighted Minnesota manufacturers in making his case for TPP. He often cites the example of RMS, a Coon Rapids-based medical device manufacturing company that wrote to him urging support of TPA and TPP to open its products to foreign markets.

Multinationals and large service companiesThe international scale of the TPP means that companies big enough to export are poised to take the greatest advantage of the agreement. Minnesota is home to a number of large companies that export a great deal of goods and services abroad: According to an estimate by the consumer-rights advocacy group Public Citizen, 42 percent of medium-to-large companies in Minnesota export goods and services, while only 7 percent of small companies do.

Lowered tariffs mean that a large company like Maplewood-based 3M will rake in more dough in the overseas markets where it already operates. Currently, Vietnam places a 17 percent tariff on “self-adhesive plastic and tape rolls” from abroad. Given that, it’s not hard to understand why 3M is pro-TPP.

U of M’s Kudrle notes that barriers to service trade — like health care and IT — could also be removed under TPP, benefiting some Minnesota companies.

“There’s a tremendous advantage in that lots of business services in the state of Minnesota are eager to get into eastern markets,” he says, citing Minnetonka-based UnitedHealth Group, which has a large information processing division that could do work abroad.

Also important to note is the import side of the agreement: Under TPP, large retailers like Minneapolis-based Target will pay less for the host of goods — apparel, electronics and other consumer items — that it imports from overseas. U.S. companies, including Target, bought over $7 billion in apparel imported from Vietnam in 2012, and under an agreement like TPP that could further ease trade barriers, that number could rise.

The Losers

Small community farmers
While bigger agricultural companies are foreseeing big dividends from TPP, some small and community farmers in Minnesota are denouncing the deal as the latest in a series of blows against the economic viability of such operations — and potentially, a knock-out punch. TPP “would expand the NAFTA ‘trade’ pact model under which agricultural imports have surged, agricultural exports have slowed and family farms have disappeared,” according to a statement by the National Farmers Union.

The NFU points out that in Minnesota, agricultural exports declined under NAFTA and the 2011 free-trade pact with South Korea.

“Farmers were promised that the Korea [Free Trade Agreement] — the U.S. template for the TPP — would boost U.S. agricultural exports to Korea, particularly meat exports,” says the NFU. “But U.S. exports to Korea of pork, beef and poultry — all top agricultural exports for Minnesota — declined 15, 18 and 42 percent, respectively, in the first two years of the Korea FTA.” Total agricultural exports from Minnesota to Korea declined by 41 percent.

Of course, it’s difficult to definitively say that free-trade agreements undermine exports, and there are a number of factors that influence global balances of trade. But opponents of the trade deal, like Karen Hansen-Kuhn of the Minneapolis-based Institute for Agriculture and Trade Policy, say that in past trade deals, the prospect of increased export revenue has been held up to mitigate other concerns about food safety and public health. After NAFTA and other FTAs, Hansen-Kuhn says, “the actual experience is that those supposed benefits haven’t materialized. What has materialized is much greater corporate concentration in agriculture and fewer family farms.”

The IATP notes that since NAFTA, nearly a quarter of Minnesota’s small farms — about 15,000 — have shuttered. The farmers who remain are concerned now that the same will happen to them.

Low-income workersA reality of trade — acknowledged by TPP supporters and opponents alike — is that not everyone is a winner, and some Americans will inevitably be hurt by a major trade deal. U of M’s Kudrle, who calls TPP a generally good deal for Minnesota, contends that most of the American jobs that will be lost to international trade have already gone. Still, he notes that those most likely to be hurt are low-income workers. “The sense that trade is bad for the least advantaged people in society is probably true,” he says.

So, while high-skilled workers at firms like the medical technology company RMS may benefit, Minnesota’s lower-skilled manufacturers could lose their jobs when the goods they produce are made more cheaply in TPP countries like Vietnam and Malaysia. Minnesota has lost nearly 50,000 manufacturing jobs since NAFTA took effect, according to Public Citizen. The group also contends that free-trade deals have contributed to income inequality, which has risen since NAFTA.

While proponents of free trade claim that job loss is mitigated by cheaper consumer goods, Public Citizen argues that “90 percent of U.S. workers would lose more to inequality increases than gained in cheaper goods.” It’s possible that the multinational companies that stand to benefit from TPP will create jobs thanks to trade-boosted revenues, but it’s unclear how much, and there’s virtually no getting around the fact that some jobs will be lost because of TPP.

MiningThe mining industry in Minnesota and elsewhere would probably be more hurt than helped by an agreement like TPP. Eighth District Rep. Rick Nolan has been vocal in his opposition to TPP on the grounds that it would have disastrous effects on his district’s mining industry. Key to his concerns is distrust of overseas companies — and several TPP signatories — who could potentially flood the U.S. market with steel and other products subsidized by their governments, putting U.S. products at a disadvantage.

In an op-ed in the Mesabi Daily News, Nolan explained,  “Australia — one of our so-called ‘partners’ in this venture — is already in the process of doubling the amount of iron ore on the world market today. If the Trans-Pacific Partnership is approved, we can expect a flood of cheap Australian iron ore to enter our marketplace — costing us thousands more good jobs and very possibly the collapse of America’s steel industry as we know it.” Minnesota taconite operations have laid off more than 1,000 workers in the last year because of that practice, which industry advocates refer to as “steel-dumping.”

Republicans and others in favor of TPP have noted the flexibility of the agreement, and sought to assuage concerns like Nolan’s by emphasizing the role of negotiation. However, there is precedent for cheap commodities from abroad hurting production at home. The U.S. sugar industry, for example, took a major hit when cheap Mexican sugar hit the market after NAFTA.