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Global trends ripple through New Ulm

Staff photo by Connor Cummiskey 3M employees David Walls (left) and Rick Zuti examine rubber insulators for electrical systems that get shipped over the border to nations such as Japan.

NEW ULM — In an increasingly global economy, changes in international trade can ripple through towns everywhere.

Even a town in southern Minnesota can be influenced and in turn influence the global market. Changes in trade policies or taxation could hold repercussions for a place like New Ulm.

An easy place to start looking for such repercussions would be 3M. The manufacturing firm is a net exporter, meaning it sells more to foreign countries than it buys from them.

“We all take great pride in the fact that we are a net exporter and we are helping the balance of trade for the U.S.,” New Ulm Plant Manager John Illikman said.

The local plant exports about a quarter of its products Illikman said. That includes products like cables and wires for telecommunications and headsets used in fast food drive-throughs.

The Minnesota-founded company has operations in 70 countries and sales in 200, according to its website, but maintains its headquarters in the U.S.

“At this time, when lots of companies are looking to move their production to other countries that are perceived to be very low cost because of their labor rates, 3M is really looking to regionalize and do things from a total-cost standpoint,” Illikman said.

Illikman defined a total-cost standpoint as considering the costs related to distribution and shipping that come with trying to save money on wages.

With headquarters in the U.S., 3M faces higher taxes than companies that move overseas, something that Illikman argued makes competing in a global market more difficult.

The Tax Foundation, a Washington-based, research nonprofit lists the U.S. top marginal corporate tax rate — the top bracket for corporate taxes — at 38.9 percent for 2016.

That is the third-highest rate in the world, according to the foundation’s findings. Behind only Puerto Rico (a U.S. territory) and the United Arab Emirates.

In contrast, The Organization for Economic Cooperation and Development (OECD), an intergovernmental organization for analyzing and comparing economic policy, puts the U.S. tax-to-GDP (Gross Domestic Product) at 31 out of the 35 member countries.

Tax-to-GDP measures the amount of taxes collected by the government as a percentage of national GDP. The U.S. collects 26.4 percent of GDP.

Either way, 3M works to maintain a competitive edge on production-side savings. “That is things like finding ways to reduce waste on the products that they (workers) are working on and finding ways to get things done more productively,” Illikman said.

3M would like to see the United State’s tax rates closer to the level of other industrial nations, Illikman said.

“What we like to look for, 3M as a company, is just that there not be excessive taxes or things like that,” Illikman said.

“I think if that was to happen you would see more companies bring more business back into the U.S.,” he added.

For 3M that would mean the company could become more competitive in the global market.

“We think that we can grow our sales and grow our business, which means more jobs for the community, if we can become even more competitive through our quality and pricing structure,” Illikman said.

However, the global economy doesn’t just affect importers and exporters. Associated Milk Producers Inc. (AMPI) doesn’t export any product directly, but dairy production worldwide can have an impact on prices here.

“What is different in dairy now than what it was 20 — or 10 years ago for that matter — is that it is a very global market,” Director of Public Affairs Sarah Schmidt said. “So we as American dairy farmers need to be just as dialed in to how cows are producing in the European Union and New Zealand as they are here at home.”

Schmidt used the example of a Russian embargo on European dairy products enacted in August of 2014.

That ban meant those products needed to find new customers, customers that included purchasers of AMPI products.

The resulting competition drops the price of dairy products. But that is Russia. Closer to home is a more significant dairy partner — Mexico.

Mexico is the number one market for dairy exports valued at $1.2 billion according to a U.S. Dairy Export Council fact sheet.

“Second through ninth, when you look at our trading partners, those countries combined do not even equal what we do in business to Mexico,” Schmidt said.

Schmidt said that dairy exports account for 15 percent of milk produced. In Minnesota alone that means 3,350 dairy farms and 2,882 jobs rely on dairy exports.

“Those dairy processors who are selling to export customers, if those sales would decline, that product would backup into the United States,” Schmidt said. “So there would be a surplus of dairy products looking for a home here domestically. That would bring everybody’s price down.”

Profit margins for dairy are not big to begin with. Last year the U.S. Department of Agriculture released $11.2 million in financial assistance as part of its Margin Protection Program for Dairy.

The program acts largely as insurance for dairy producers, Schmidt said. When the margin between dairy prices and feed costs gets too small it pays out, attempting to sustain producers in tough times.

That means a change in the North American Free Trade Agreement (NAFTA) could damage agriculture if Mexico starts buying less product.

“I mean Mexico is so far and away an important export market for the U.S. dairy market that we need to, if we are renegotiating or modernizing NAFTA, we need to preserve what is in place for Mexico,” Schmidt said.

That being said, AMPI does see room for improvement to the 1994 trade agreement in regards to Canada.

The northern neighbor manages dairy production through a supply management system overseen by the Canadian Dairy Commission.

Canada’s system puts quotas on production based on forecasted national demand to provide more stable prices in dairy products, according to the commission’s website.

The system means dairy is not being imported in any large quantity. If NAFTA were renegotiated, changing that system to open Canada to U.S. dairy is high on AMPI’s to-do list.

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