Illinois Gets Caught in the Crosshairs
Tariffs, aimed at protecting American businesses, are instead likely to hit the Illinois economy.
By KRISTINE BLENKHORN RODRIGUEZ | Fall 2018
Home to roughly three dozen Fortune 500 companies and the fifth highest GDP in the nation,
and ranked fifth nationally for both exports and imports, the economic health of Illinois plays
heavily into the economic health of the country. Economic growth then, unsurprisingly, is top
of mind for the Illinois Department of Commerce & Economic Opportunity, which has
targeted six areas for driving Illinois’ growth: advanced manufacturing, agribusiness & food
processing, transportation distribution and logistics, life sciences & biotechnology, business
& professional services, and energy.
Cross-reference that list with the product tariffs 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 worth of Illinois exports are threatened by new tariffs.
From soybeans to passenger vehicles, Illinois’ big industries and exports are squarely in the
middle of the global tariff brouhaha we’ve been plunged into.
With costs creeping higher from the tariffs 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 necessary to keep Illinois’ economy growing. Add in
the fact that more than 5,600 foreign-owned businesses operate throughout Illinois and the
impact of tariffs and trade wars becomes all the direr.
TARIFFS TODAY
Laura Ortega Lamela, executive director of the International
Business Council at the Illinois Chamber of Commerce, says Illinois
exported goods worth $64.9 billion in 2017: “Our top markets are
Canada, Mexico, China, and Germany — all countries with whom
we are currently engaged in trade negotiation squabbles. What
Illinois companies want is the ability to increase their commercial
relationships with these countries — tariffs hinder that. Free trade
agreements are great examples of the value that building key
economic partnerships brings to our state. Illinois’ free trade
agreement partner countries represent 53 percent of Illinois’ total
exports and they purchase 16.6 percent more goods than non-free
trade agreement countries. The United States has free trade
agreements in force with only 20 countries.”
Manor Tool and Manufacturing Company, a specialized metal
stamping company in Schiller Park, Ill., is feeling the tariff 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 Manufacturing Committee.
“We were seeing increases in our costs even before the tariffs took
effect in anticipation of them.”
Despite the increasing costs, Simeone says he sees the logic in
tariffs: “After 35 years of seeing the amount of business we’ve lost
to overseas competition, sometimes you just get fed up with it.
Two domestic competitors in a materials-intensive business will
both have the same cost problems. That, at least, is a fair fight.
Add one overseas competitor to the mix, and the domestic guys
struggle at a disadvantage.”
Tariffs are supposed to level the playing field, but with any new or
increased tariff — particularly retaliatory tariffs — and any failed free
trade agreement, Illinois businesses face rising risks of an economic
hit. The Chicago area is home to three of Bluewater Thermal
Solutions’ plants, where it commercially heats and tempers ferrous
metals. Its customers span the agriculture, auto, manufacturing, and
oil and gas industries.
“Roughly 70 percent of our business is in agricultural and
automotive equipment/components work — two staples in Illinois’
economy. Tariffs 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 average farmer’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 Caterpillar may cut back on orders to our customers, 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 tariffs, 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 agriculture industry are especially
concerned. The Trump administration proposed some $12 billion in
aid for farmers hurt by tariffs, but here in Illinois, farm incomes have
already been hurting — tariffs are just another blow.
“Farmers in the state are in their fifth consecutive year of declining
income,” warns Tamara Nelsen, Illinois Farmers Bureau senior
director of commodities. “Because there has been little weather loss
and superior genetics in corn and soybeans over the past four
years, Illinois farmers are facing huge stockpiles. Toss in the
uncertainty over tariffs and prices go down.”
“We’re in a loss scenario. Add tariffs on top of it and it becomes a
truly serious situation,” says Robert Klemm, a farmer of 43 years and
Illinois Farm Bureau board member. Klemm says he has watched
corn and bean prices decline some 20 percent since President
Trump started talking tough on tariffs in May.
Klemm’s son helps him work his 1,200-acre farm located between
Bloomington and Decatur. “He is the fifth generation to farm the
land; I’d like to see that continue,” Klemm says. “We need trade, not
tariffs. 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, everything 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 financing. Banks are starting to question their lending. If
something new doesn’t come into play for us — and tariffs move
ahead full steam — well, it’s disheartening. A lot of good people have
their livelihood at risk.”
BALANCING ACT
“The situation is unprecedented,” says Joseph Cheng, Ph.D.,
research professor of innovation and international business in
the Gies College of Business at the University of Illinois
Urbana-Champaign. “The closest I can remember happened from
2009 through 2011. The U.S. and Mexico were disputing over
NAFTA [North American Free Trade Agreement]. The Mexican
government placed tariffs on $2.4 billion worth of goods shipped
from the U.S. to Mexico. For Illinois, that meant everything from
agricultural products to tableware. The U.S. lost more than 25,000
jobs in that trade war.”
“Tariffs are kind of a way of life right now,” says Illinois General
Assembly Rep. William Davis. “A delicate balance exists in both
directions. When you start talking about increases, you start to upset
that delicate balance. As a country and a state, we rely on the influx
of goods and services, just as we rely on being able to push them
out to other countries. It’s not just industry in Illinois that will be
impacted, but also our farming community — combined, that’s a
huge impact on our state’s economy.”
Davis represents the 30th District in Chicago’s south suburbs, a
district in which industry is prevalent. “We have assembly plants —
Ford is in the south suburbs. Illinois has a Chrysler plant. Steel
production is an important part of our local economy. Those are
important jobs we’d like to keep,” Davis says.
“How do we then balance that against something else? Do we say
steel is more important than agriculture?” Davis asks. “That doesn’t
seem right, but neither does the reverse. Again, if you’re shifting a
delicate balance, you must do it mindfully. Some of the proposed
trade changes appear arbitrary.”
Cheng sees the tariffs as protectionist measures that look back, not
ahead. “Our state’s mix of industries is changing. We should be
looking forward and identifying the growth industries of the future
rather than focusing on industries that are declining. Just as we
moved from agriculture to industry 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 opportunities
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 primary hub, the Discovery
Partners Institute (DPI), are being developed to accelerate
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 2019 budget.
State funding will go toward design and construction of DPI’s facility
in Chicago (currently slated for a site along the Chicago River),
which will be home to world-class research and hands-on
educational training for students, as well as to hubs of the IIN
stretching across the state.
The new institute will bring together top faculty in agriculture,
healthcare, computing, and other critical fields from the U of I System
and partner universities, including the University of Chicago and
Northwestern University. Dozens of new researchers 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 serves 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 served very 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 fighting on numerous fronts in 2019, 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 very big way.” That said, Nelsen
hopes for progress with Canada and Mexico, and a bilateral trade
agreement with Japan, which would give Illinois farmers some
assurance that they’ll be ok.
Klemm is focused on the here and now. “We have to worry about
paying off 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 leaders like Shapiro and Simeone, worries about
the state’s overall economic health are sure to linger. “I’m concerned
in the longer term,” Simeone says. “I guess all I can do is be as
competitive in manufacturing as I can be.”
The full trickle-down impact from tariffs and escalating trade
wars is yet to come in any real sense, yet many Illinois workers,
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.