Minnesota economist weighs in on Trump’s tariff plan

President Donald Trump wasn’t kidding when he called himself “Tariff Man.”

His broad-based, unpredictable tariffs have upended trade and financial markets worldwide.

The scale and scope of the tariffs announced by the Trump administration is unprecedented in recent U.S. history. The Trump tariffs are the highest of any advanced industrial democracy by a wide margin.

The looming risk is that high taxes on foreign goods will unleash a trade war as other nations retaliate. While Trump has given most countries a reprieve to negotiate future tariffs rates, he hasn’t backed off higher charges on Chinese goods.

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At any moment, the administration might slash tariff rates on Chinese imports to lower tensions between the two giant economies. If rates on Chinese goods were cut in half the range would be somewhere between 50 percent and 65 percent —still steep by historic standards.

What’s more, concerned that Trump’s trade policies will harm American businesses and consumers — mostly through higher prices — Minnesota Attorney General Keith Ellison and a coalition of other attorneys general filed a lawsuit to block steep import taxes. The lawsuit is based on the observation that the tax levies have come from four executive orders by Trump while the Constitution puts the power to tariff with Congress.

Meanwhile, investors, businesses, and consumers are struggling to figure out how best to navigate the uncertain timing, depth and scale of tariffs. Wall Street economists are hiking the odds of a tariff-driven recession.

For instance, J.P. Morgan has increased the probability of a recession to 60 percent in 2025, up from 40 percent previously and Goldman Sachs has raised the recession risk to 45 percent in the next 12 months. The International Monetary Fund recently downgraded its growth forecast for the U.S. and the rest of the world.

“A series of new tariff measures by the United States and countermeasures by its trading partners have been announced and implemented, ending up in near-universal U.S. tariffs on April 2 and bringing effective tariff rates to levels not seen in a century,” according to its latest World Economic Outlook.

“This on its own is a major negative shock to growth. The unpredictability with which these measures have been unfolding also has a negative impact on economic activity and the outlook and, at the same time, makes it more difficult than usual to make assumptions that would constitute a basis for an internally consistent and timely set of projections.”

Minnesota’s history with tariffs

History provides some guidance to the potential economic impact of tariffs on the U.S. economy in general and the Minnesota economy in particular. Tariffs were popular early in U.S. history and import taxes contributed a significant portion of the federal government’s revenue (until the advent of the federal income tax in 1913).

The trend toward reducing tariff barriers set in after the Second World War. U.S. tariffs on imports averaged just 2.3 percent in 2024, calculates Dartmouth University economic historian Douglas Irwin. If the Trump administration sticks to its tariff goals, import taxes on goods are now expected to rise to some 30 percent — where they were in the late 1800s, he adds.

Louis Johnston is also a well-known economic historian based at the College of St. Benedict and St. John’s University in St. Joseph, Minn. Johnston delights in economic history. For instance, his office is on the third floor of the historic Main Building on the campus.

“If you look outside, there’s a steel railing around the mezzanine stamped with the name of Carnegie on it, which is really cool for an economic historian like me,” he said. “Every day I look up and see that and I’m reminded of iron ore coming out of northern Minnesota getting shipped down to Lake Erie and then being turned into steel, which then got shipped back here. Which is pretty darn cool.”

That’s a nice way to think about the impact of 19th century steel titan Andrew Carnegie on Minnesota. Johnston is writing a book about Minnesota’s economic history. The emergence of tariffs has brought history alive.

“I used to talk about tariffs in my economic history courses as an interesting thing that we used to do, but that went away over the last 80 years,” he said. “Wow, all of a sudden, it’s current events. It really is like being in a time machine.”

Trump’s tariff plan could negatively impact the state

What is Johnston’s reaction to the Trump administration’s “time machine” tariffs? He doesn’t like them. For one thing, like many of his economic peers, he recoiled at the slapdash way the Administration calculated potential tariff rates for different countries.

For another, he believes imposing broad-based and steep tariffs on trading partners will reduce the growth rates and dynamism of the U.S. economy.

“These are back to levels of the 1930s and 1920s when we had historically high levels of tariffs,” he said. “It just appalled me.”

The story of tariffs and Minnesota’s economy is nuanced, with many trade-offs, costs, and benefits to take into account. Still, when it comes to judging economic policies, the net calculation counts. The main net lesson Johnston draws from looking at the past: Tariffs didn’t benefit Minnesota in earlier centuries and there’s no reason to think otherwise today.

“When it comes to the Minnesota economy, tariffs are only something that are going to hurt you. They’re only something that will reduce your incomes and slow down the economy, because Minnesota is so tied into the international economy,” he said. “Anything that hurts our ability to export our products, to bring new workers in, to share in new technologies that are developed all around the world is only going to hurt us.”

Minnesota and the global economy

Minnesota has been hooked into the global economy from at least the time of the earliest fur traders. In the second half of the 19th century, businesses such as lumber and wheat dominated.

Wheat was either ground into flour within Minnesota or it was exported to the international markets.

The federal government didn’t put tariffs on agricultural products. Tariffs only involved manufactured goods.

The lack of tariff protection angered Minnesota farmers who competed with farmers in Russia, Australia, Argentina and elsewhere in the international wheat market.

“Minnesota agriculture has always been quite exposed in terms of international trade and not having much protection,” Johnston said.

The situation changed after the World War I with the administration of President Warren Harding. Farmers suffered during the 1921 agricultural depression from falling prices, overproduction, and mounting debts. The rest of the post-war economy boomed, but not farming — the so-called “quiet depression.”

Washington turned to a series of tariff initiatives to lean against the agricultural depression. The strategy didn’t work.

“There wasn’t any cheap imported grain coming in,” Johnston said. “It was simply that there was a glut of production and that was driving prices down. The tariffs were ineffective.”

The tariff story with Minnesota’s iron ore and steel industries is more complicated. Economic historians these days emphasize the key role played by technological progress and natural resource advantages in the evolution of business rather than tariffs.

More open borders also helped Minnesota’s iconic agribusinesses to grow and innovate. Companies like General Mills, Pillsbury and the Green Giant (The Green Giant Company merged with Pillsbury in 1979).

Green Giant grew peas in Minnesota’s River Valley and in Manitoba, Canada. General Mills and Pillsbury would use wheat, oats and other grains from Minnesota, Kansas, Saskatchewan or “from wherever it’s grown and find the best mix and then put it together in American factories,” Johnston said. “Very much like the automobiles are being put together today.”

Haunting the business history of tariffs in Minnesota are the tragedies of farmers who lost their farms, unemployed workers, and industries that shrank, largely thanks to intense foreign competition. Indeed, a major justification Trump gives for his embrace of tariffs is to bring back a vibrant manufacturing industry to the U.S. While many economists aren’t convinced about the tactic, they agree the underlying problem is real.

The U.S. economy and society has witnessed massive increases in income inequality. Senior management has restructured, downsized, rightsized — pick your favorite euphemism —millions of Americans out of jobs while clamping down on wages. Little wonder economic insecurity has risen among many workers and their households.

In essence, the gains from international trade and greater economic integration among countries and companies are dispersed throughout the economy. The costs — measured in lost jobs and lower wages and benefits — are highly concentrated in an industry or region.

“If the U.S. and Canada are trading with one another, it turns out that if you consider all the citizens in those two countries together as a group, they're better off. The next question, though, is, how do we distribute those gains?” Johnston said. “What we’ve mostly settled on in the United States is the top one percent and the top one-tenth of one percent have ended up getting most of the benefits of trade. The costs have fallen disproportionately on people at the lower income scale and in certain geographic areas.”

Tariffs could be a drag on Minnesota’s Fortune 500 companies

Economists like Johnston don’t see protectionism and tariffs as a viable solution. Many iconic Minnesota-based companies are deeply embedded in global trade flows. Companies like 3M, Cargill, Ecolab, and Hormel manage global supply chains and, if other countries retaliate by taxing imports from the U.S., a tariff war could drag on their businesses.

For example, 3M recently estimated tariffs could add up to $850 million annual impact, although the company will take steps to reduce the tariff bill.

Companies aren’t the only institutions that operate in a global economy. So do students.

Johnston said his students are eager to learn more about tariffs.

“They’re really interested because students today are operating in a global economy. They think about it that way. And so they’re interested in what’s going on in China, what’s going on in Europe, what’s going on in Sub-Saharan Africa,” he said. “When they hear about tariffs and they hear about trade being affected, they actually ask, ‘Well, how is that going to affect me? How is that going to affect my job prospects? How is that going to affect my parents’ jobs.’”

At this juncture in history, the safest forecast for students, Minnesota, and the U.S. economy is that the main impact from the Trump administration’s tariff wars is a deep and unsettling uncertainty.