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Scary questions - part two: where would Minnesota be without trade?
This is the second part of a two-part series in which Minnesota 2020 looks at Minnesota's remaining economic strengths that are showing signs of vulnerability. Yesterday's installment looked at the agriculture and agribusiness sectors that, until recent weeks, seemed immune to problems in the financial world.
Trade - specifically export trade - is the other strong leg of Minnesota's economy. But it, too, is getting a little weak in the knee.
The U.S. Commerce Department and Minnesota Department of Employment and Economic Development (DEED) announced on Oct. 2 that Minnesota's manufactured goods exports increased by 13 percent in the second quarter this year - to $4.4 billion. That marked the fourth consecutive quarter in which exports topped the $4 billion mark, and it came with gains in eight of the state's 10 leading manufacturing sectors.
The unsettling part of this report was that Minnesota exports didn't keep pace with the national average growth rate of 16.3 percent. The miscellaneous products category, which includes the state's huge medical device industry, actually had a slight decline in the quarter of 3.7 percent, to $517 million.
The weak U.S. dollar is the unintentional reason why there is any economic activity left in America and Minnesota with double-digit growth rates. While world currency market traders beat up on the dollar in response to irresponsible U.S. fiscal policies, the cheap dollar in turn has made American commodities, goods and services inexpensive in international trade.
"The dollar makes an offset, or sorts, although I suspect most Minnesotans would rather see a strong economy," said C. Ford Runge, an applied economist at the University of Minnesota. "The (weak) dollar isn't going to recover what else we are losing."
P. Richard Bohr, the Asian scholar and former head of the Minnesota Trade Office (1987-1991), said his office looked at the Minnesota economy as divided in thirds in ways not used in federal industry definitions. One third was the agriculture and natural resources economy, another third was high tech and medical products and the other third was service.
All three categories depend heavily on what former Gov. Rudy Perpich called "the brain economy," said Bohr, who is a professor of Asian studies at the College of St. Benedict and St. John's University. Of the three, two are still pumping out growth for Minnesota while services, in general, are struggling with the national economy.
Data released this past week by DEED Commissioner Dan McElroy and Trade Office executive director Tony Lorusso bear out strengths within the three poles. Machinery exports increased 14.5 percent in the second quarter, transportation equipment exports increased 28.4 percent, and computers and electronics saw a 5.5 percent gain to represent Minnesota's largest trade sector with more than $1 billion in sales.
Processed or manufactured food products ($378 million) are part of the manufacturing trade statistics while trade in agricultural commodities is not counted in this quarterly report. Trade statisticians merely apportion trade to states based on farm production of different commodities.
Minnesota companies, large and small, have become better at promoting and marketing their products in world markets during the past 20 years, Bohr said. While that helps the state's economy greatly, there can be no doubt that the biggest boost to trade comes from the weak dollar, he added.
Bohr and Runge agree with currency market analysts who expect the dollar will gain on other world currencies and make U.S. goods more costly. This can come from external influences, such as weakness in other national economies, or from changes in U.S. monetary policy should the Federal Reserve tighten the money supply in the coming year.
The dollar is gaining some strength as America's financial mess spills onto other national economies. Some observers in London warned on Tuesday that the United Kingdom has already slipped into recession. Slumping world oil prices, denominated in dollars, are another sign that market conditions are changing rapidly.
Whether from weak global demand or from higher dollar exchange rates, exporting from Minnesota is certain to become a greater challenge in the year ahead.
We have a few tools at the state level, such as the Minnesota Trade Office, that can help Minnesota firms with trade, but the state doesn't have tools to change the international trade climate. Minnesota needs to stand ready to meet increased human needs at home as the economy falters even more. Signals from the agriculture and trade sectors say even worse times are coming.
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