What Trump's Re-Election Would Mean for Minnesota's Economy

Former President Donald Trump appears likely to win re-election this fall.

Bond investors are betting on this, and last week’s debate showed that President Joe Biden is no longer up to the job. Democrats made a stupid decision to stick with Biden, and polls show the rest of the country won’t do the same in November.

What does this mean for Minnesota's economy?

At his rallies, Trump regularly says he will impose 10% tariffs on all imports into the United States and 60% on goods from China. He also plans to deport millions of illegal immigrants and impose his will on the Federal Reserve.

I doubt he would succeed with the last two goals, although it would slow the economy as a whole. It would confuse financial markets that are trying to influence the Fed. It would disrupt construction, agriculture and other sectors that depend on immigrant workers.

His tariff policies will lead to higher inflation in the United States and retaliation from other countries on American-made goods. Trump insisted during the debate that tariffs do not raise prices for consumers, but that is false.

I did not like Trump's trade policies during his first term. The trade war he launched with China and the tariffs he imposed on other goods imported into the United States hurt Minnesota consumers.

When China retaliated, the state’s farmers were hurt, as exports of their crops plummeted. To compensate for the damage, the government increased its payments to farmers, which were less than $20 billion in the first two years of Trump’s term, to nearly $50 billion in 2020.

Although the first question Trump and Biden were asked in the debate was about the country's economic future, they responded by discussing what happened to the economy in 2020, when the COVID-19 pandemic disrupted it.

Unfortunately for Minnesotans and for Trump and Biden, data released the day after the debate showed that Minnesota's economy contracted by 0.8% in the first three months of this year.

Eight of the 12 Midwestern states saw declines, with South Dakota and North Dakota the hardest hit. Michigan and Missouri saw growth above 1%, while Indiana and Wisconsin saw growth below 1%.

It’s possible that by late September, when the April-June quarter data is released, we’ll learn that Minnesota and most of the Midwest spent the first half of the year in recession. Minnesota’s economy grew 0.7% in the second quarter of 2023, meaning that comparative figure could be beaten.

If not, and we end up with two consecutive quarters of declining GDP to meet the official definition of a recession, I won't be surprised.

Between 2022 and last summer, the Federal Reserve raised interest rates sharply to control inflation. In doing so, it also slowed economic growth, which often tends to increase unemployment.

On the contrary, the US economy as a whole has responded to the rate hike much better than expected. Job growth has remained quite strong and unemployment has remained low.

And yet the effects of the slowdown are visible. Look around and you’ll notice that there are few construction cranes in the metro area. For the first time in my memory, there are none in downtown Minneapolis. There is one across the river, near the University of Minnesota campus.

Since 2016, Trump has campaigned on the idea that illegal immigrants are stealing American jobs. He has complained about it since the 1980s, even though he regularly employed them in his businesses, even while he was president.

However, the labor market in much of the country shifted from loose to tight during his tenure and has tightened further since 2020, as more baby boomers retired. Minnesota is one of a dozen states with a smaller workforce than it was in February 2020, the month before the pandemic-related shutdowns.

And Minnesotans aren't sitting idly by. The state has one of the highest labor force participation rates in the United States, at 68 percent.

I have yet to hear Trump talk about the labor shortage, its effects on Minnesota or other parts of the country.

Last month, Sen. J.D. Vance of Ohio, who is aspiring to be Trump's running mate, gave an interview to New York Times columnist Ross Douthat that made headlines largely because of Vance's dismissal of Trump's influence on the Jan. 6 uprising at the U.S. Capitol.

Vance's comments on the economy were almost as surprising.

“I think economists are fundamentally wrong on the immigration issue and the tariff issue,” Vance said. “Yes, tariffs can put upward pressure on prices of various things, although I think that’s vastly overstated, but when you’re forced to do more with your domestic labor force, you have all these positive dynamic effects.”

Rather than relying so heavily on immigrants to fill vacancies, Vance argues that American employers should re-attract the roughly 7 million working-age men who have left the workforce. These men exist, as analysts Richard Reeves of the Brookings Institution and Nicholas Eberstadt of the American Enterprise Institute have demonstrated in recent books.

I think the price of getting them back to work is higher than Vance thinks. And I doubt Trump ever thought about it.

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