CAUGHT IN THE CROSSHAIRS

Tarif fs, aimed at protecting American businesses, are ins tead likely to hit the Illinois economy.

BY KRISTINE BLENKHORN RODRIGUEZ

Home to roughly three dozen For tune 500 companies and the fif th highest GDP in the nation, and ranked fif th nationally for both expor ts and impor ts, the economic health of Illinois plays heavily into the economic health of the countr y Economic growth then, unsurprisingly, is top of mind for the Illinois Depar tment of Commerce & Economic Oppor tunity, which has targeted six areas for driving Illinois’ growth: advanced manufacturing, agribusiness & food processing, transpor tation distribution and logistics, life sciences & biotechnology, business & professional ser vices, and energy.

Cross-reference that list with the product tarif fs the current U.S. administration is proposing, however, and you’ll see a disconnect. The U.S. Chamber of Commerce warns that nearly $4 billion wor th of Illinois expor ts are threatened by new tarif fs

From soybeans to passenger vehicles, Illinois’ big industries and expor ts are squarely in the middle of the global tarif f brouhaha we’ve been plunged into

With costs creeping higher from the tarif fs imposed so far, it’s no surprise that many Illinois companies are feeling the squeeze, while many others fear consumers and customers won’t be able to sustain the buying volume necessar y to keep Illinois’ economy growing Add in the fact that more than 5,600 foreign-owned businesses operate throughout Illinois and the impact of tarif fs and trade wars becomes all the direr.

Tariffs Today

Laur a Or teg a Lamela, executive director of the Inter national Business Council at the Illinois Chamber of Commerce, says Illinois expor ted goods wor th $6 4.9 billion in 20 17: “Our top markets are Canada, Mexico, China, and Ger many all countr ies with whom we are cur rentl y eng aged in tr ade negotiation sq uabbles. What Illinois companies want is the ability to increase their commercial relationships with these countr ies t ar if fs hinder that. Free trade ag reements are g reat exam ples of the value that building key economic par tner ships br ings to our st ate Illinois’ free tr ade agreement par tner countr ies represent 53 percent of Illinois’ tot al expor ts and they purchase 16 6 percent more goods than non-free tr ade ag reement countr ies The U nited S t ates has free tr ade agreements in force with only 20 countries ”

Manor Tool and Manufactur ing Com pany, a specialized met al stamping company in Schiller Park , Ill , is feeling the tarif f impact in the here and now “Our raw materials are up 30 to 35 percent this year already,” says President Tom Simeone, who’s also a member of the Illinois Chamber of Commerce Manufactur ing Committee “ We were seeing increases in our costs even before the tarif fs took ef fect in anticipation of them ”

Despite the increasing costs, Simeone says he sees the logic in tarif fs: “Af ter 35 years of seeing the amount of business we’ve lost to over seas com petition, sometimes you just get fed up with it Two domestic com petitor s in a mater ials-intensive business will both have the same cost problems That, at least, is a fair f ight Add one over seas competitor to the mix, and the domestic guys struggle at a disadvantage ”

Tarif fs are supposed to level the playing field, but with any new or increased tarif f par ticularly retaliator y tarif fs and any failed free trade agreement, Illinois businesses face rising risks of an economic hit The Chicago area is home to three of Bluewater Ther mal Solutions’ plants, where it commercially heats and tempers ferrous metals Its customers span the agriculture, auto, manufacturing, and oil and gas industries

“Roughl y 70 percent of our business is in ag r icultur al and automotive equipment/components work two staples in Illinois’ economy. Tarif fs on these raw materials and products concern me because it all flows downhill,” says Rich Shapiro, general manager of Bluewater Thermal Solutions’ Chicago 1 plant “I’ve seen estimates that the aver age far mer ’s income could go down 7 3 percent If farmers’ income goes down, they don’t buy new equipment If they don’t buy new equipment, big Illinois companies like John Deere and Cater pillar may cut back on order s to our customer s, which could mean less product for us to heat treat And it’s the same on the auto side If the price of a car goes up because of tarif fs, people will repair instead of replace If they’re not buying new, we’re not heat-treating components for new cars,” Shapiro explains

Those on the frontline of the ag r iculture industr y are especiall y concerned The Trump administration proposed some $12 billion in aid for farmers hur t by tarif fs, but here in Illinois, farm incomes have already been hur ting tarif fs are just another blow

“Farmers in the state are in their fif th consecutive year of declining income,” war ns Tamar a N elsen, Illinois Far mer s Bureau senior director of commodities. “Because there has been little weather loss and super ior genetics in cor n and soybeans over the past four year s, Illinois far mer s are facing huge stockpiles Toss in the uncer tainty over tarif fs and prices go down ”

“ We’re in a loss scenario Add tarif fs on top of it and it becomes a truly serious situation,” says Rober t Klemm, a farmer of 43 years and Illinois Farm Bureau board member. Klemm says he has watched cor n and bean pr ices decline some 20 percent since President Trump star ted talking tough on tarif fs in May

Klemm’s son helps him work his 1,200-acre farm located between Bloomington and Decatur “He is the f if th generation to far m the land; I’d like to see that continue,” Klemm says “ We need trade, not tarif fs. We know the implications of the trade imbalance. But right now, agriculture is being singled out as a pawn With the swipe of a pen, ever ything we’ve built for decades can be decimated ”

Making matters worse, the banks are “getting edgy,” Klemm adds “They’re concerned Farmers require an extensive amount of capital and f inancing Banks are st ar ting to q uestion their lending If something new doesn’t come into play for us and t ar if fs move ahead full steam well, it’s dishear tening A lot of good people have their livelihood at risk ”

Balancing Act

“ The situation is un precedented,” says Joseph Cheng, Ph D , research professor of innovation and inter national business in the Gies College of Business at the U niver sity of Illinois Urbana-Champaign. “The closest I can remember happened from 2009 through 20 1 1 . The U.S. and Mexico were disputing over NAFTA [N or th Amer ican Free Tr ade Ag reement] The Mexican government placed tarif fs on $2 4 billion wor th of goods shipped from the U S to Mexico For Illinois, that meant ever ything from agricultural products to tableware The U S lost more than 25,000 jobs in that trade war ”

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Tar if f s are kind of a way of life r ight now,” says Illinois Gener al Assembl y Rep William Davis “A delicate balance exists in both directions When you star t talking about increases, you star t to upset that delicate balance As a countr y and a state, we rely on the influx of goods and ser vices, just as we rely on being able to push them out to other countr ies. It ’s not just industr y in Illinois that will be im pacted, but also our far ming community combined, that ’s a huge impact on our state’s economy ”

Davis represents the 30th Distr ict in Chicago’s south suburbs, a district in which industr y is prevalent “ We have assembly plants Ford is in the south suburbs Illinois has a Chr ysler plant S teel production is an impor t ant par t of our local economy. Those are impor tant jobs we’d like to keep,” Davis says “How do we then balance that against something else? Do we say steel is more impor tant than agriculture?” Davis asks “That doesn’t seem right, but neither does the reverse Again, if you’re shif ting a delicate balance, you must do it mindfully Some of the proposed trade changes appear arbitrar y.”

Cheng sees the tarif fs as protectionist measures that look back , not ahead “Our st ate’s mix of industr ies is changing We should be looking for ward and identifying the growth industries of the future r ather than focusing on industr ies that are declining Just as we moved from agriculture to industr y in the Industrial Revolution, we must now move from traditional industries to emerging ones using next-generation technologies,” he argues.

Davis, like Cheng, also believes Illinois should be looking to future sources of revenue “Today, I’m in a discussion with ComEd about growing solar industries in Illinois and expanding trade oppor tunities that currently exist to grow another sector of our state economy We can’t keep relying on the same sectors to do it for us, economically.”

FUTURE-FOCUSED?

“Old jobs will not come back , ” says Cheng “But old jobs do not make us competitive And old jobs don’t create a future Only new jobs do We have not trained our local workforces to transition from old jobs to new jobs ”

A new statewide innovation enterprise led by the University of Illinois System may be the key to those new jobs. The $1.2 billion statewide Illinois Innovation Network (IIN) and its primar y hub, the Discover y Par tner s Institute (DPI), are being developed to acceler ate innovation, job creation, and economic growth throughout Illinois The initiative got a major boost when $500 million in funding was approved in the state’s FY 20 19 budget

S tate funding will go toward design and construction of DPI’s facility in Chicago (cur rentl y slated for a site along the Chicago River), which will be home to wor ld-class research and hands-on educational tr aining for students, as well as to hubs of the IIN stretching across the state.

The new institute will br ing together top faculty in ag r iculture, healthcare, computing, and other critical fields from the U of I System and par tner univer sities, including the U niver sity of Chicago and Nor thwester n U niver sity Dozens of new researcher s also will be added and together they will connect with hundreds of businesses and thousands of students over time, as well as with entrepreneurs and venture capital firms

“ We have to be the first mover in emerging industries there’s an advantage in that,” says Cheng, who currently ser ves as a member of the DPI launch team “The DPI project is focused exclusively on the next-gen technologies that create new industries and new jobs Our economy’s health depends on it ”

Looking Ahead

For now, Illinois is far more reliant on foreign trade than many states, says Adam Nielsen, director of national legislation & policy development for the Illinois Farm Bureau: “ We are ser ved ver y well by our rivers system We have direct access to the Gulf of Mexico We are centrally located We’re a hub for trade ”

On the agricultural front, Nelsen sees more trouble ahead “If we’re still f ighting on numerous fronts in 20 1 9, a lot more of our Illinois farmers will be in trouble,” she worries “They know China will be a longer haul But China matters in a ver y big way ” That said, Nelsen hopes for progress with Canada and Mexico, and a bilateral trade ag reement with Japan, which would give Illinois far mer s some assurance that they’ll be ok

Klemm is focused on the here and now “ We have to worr y about paying of f this year’s operating loan to be able to put a crop in next year You’ve got to make it through today to even get to the long term ”

As for business leader s like Shapiro and Simeone, worries about the state’s overall economic health are sure to linger “I’m concerned in the longer ter m,” Simeone says “I guess all I can do is be as competitive in manufacturing as I can be.”

The full tr ickle-down im pact from t ar if f s and escalating tr ade war s is yet to come in any real sense, yet many Illinois wor ker s, farmers, and business leaders are already beginning to feel it in an all-too-real way There is a lot at stake for Illinois, much more than meets the eye