On the beautiful North Shore, citizens
of the Grand Portage Band of Lake Superior Ojibwe often keep one eye
looking out over the horizon of Lake Superior and another eye on
traffic coming down the shore from Canada.
The U.S. dollar is rising against most
of the world’s hard currencies and widening the exchange rate gap
with the Canadian dollar as well. From past experience, any imbalance
in the exchange rate of currencies can distort trade volume and
direction of trade flow; it can certainly influence where people go
for tourism and shopping.
Eight out of 10 cars, vans and coaches
parked outside the Grand Portage Lodge and Casino most days have
Canadian license plates. Other hospitality industry enterprises
operated by Northern Minnesota, North Dakota, Montana and other
border state tribes and bands are nearly as dependent on
international trade as Grand Portage.
But Grand Portage may top them all,
said former Minnesota Trade Office director P. Richard Bohr, recently
retired from the College of St. Benedict and St. Johns University. He
continues to monitor global markets while teaching in the master’s
of international business (MIB) and the master’s of international
development (MID) programs for St. Mary’s University graduate
school in Minneapolis.
“It’s hard to image there is
another Minnesota enterprise as dependent on international trade as
them,” he said.
The State of Minnesota’s Indian
Affairs Council notes that 80 percent of Grand Portage’s
hospitality industry revenues come from Canadian visitors. The
reservation at the tip of the Arrowhead Region is Cook County’s
largest employer, with about 300 people holding jobs in its
hospitality industry enterprises. Of them, the Council estimates 18
percent are international employees – First Nation Ojibwe from
Thunder Bay – who cross the border each day from their homes in
Ontario.
For readers not familiar with the
Arrowhead Region, Grand Portage is 37 miles down the coast of Lake
Superior from Thunder Bay, 36 miles northeast of the Minnesota resort
town of Grand Marais and 150 miles up the Lake Superior coast from
Duluth.
Because of that location, other
Minnesotans often think of Grand Portage as an isolated but scenic
spot on the map. It is scenic, but it has never been isolated, said
Band member Bill Blackwell, Jr., director of the American Indian
Resource Center at Bemidji State University.
Going back to early colonial times,
“the epitome of high fashion back in Europe was the beaver hat,”
Blackwell said. “A lot of those beaver pelts got started on their
way to Europe from Grand Portage.”
Along the way, the Grand Portage Band
of Lakes Superior Chippewa traded with the French, then with the
British, and eventually with the Americans and Canadians. What has
evolved over time from the fur trade, fishing and logging activities
is the modern hospitality and tourism industry of the past three
decades, Blackwell said.
Eleven of the current 18 tribally-owned
resorts and casinos in Minnesota are in the northern third of the
state and cater to Canadian visitors. But busloads of Canadians visit
the Dakota casinos and resorts in southern Minnesota and do so in
Montana and North and South Dakota as well.
So when might this cross-border tourism
become impacted by exchange rates?
We may be getting there soon, warns
Fletcher Baragar, a University of Manitoba economist and specialist
on the Manitoba and Canadian economies.
When the Canadian dollar falls to
around 75 cents against the U.S. dollar, and stays there or weakens,
“it will give families in Manitoba pause before driving over the
border,” he said. It had reached that level in late July and was 76
cents against the dollar at the time of this interview.
At the same time, Baragar said, the
tourism and hospitality industries don’t necessarily track with
other trade dynamics. “There’s always been this idea, at least,
that there was more diverse retail offerings in the states. A strong
U.S. dollar will discourage some shoppers from crossing although
there is still an attraction. Going over for recreation might be
different.”
Baragar recalls in times past when the
exchange rate was wide that Grand Forks, N.D., merchants ran special
promotions for Canadians including taking Canadian currency in equal
exchange. In that case, they squeezed their profit margins to keep
volume moving.
Underpinnings of the economy, currency markets
Only commodity and currency traders are
betting whether the current imbalance between the U.S. and Canadian
dollars is a blip or a likely sustained relationship. All the reasons
for the current market won’t be explained here, but there are
numerous pressures.
Among them, Greece’s financial
problems are putting stress on the euro, the common currency for most
European nations. There is fear that the euro may come under
additional pressure from financial difficulties in four other major
European nations and there isn’t certainty that Greece will remain
in the monetary union.
China, meanwhile, has had a rapidly
expanding economy that now may be running out of steam or at least
taking a pause. Indicative of that, its stock market has been in near
free fall for more than a month.
This has weakened Chinese demand for
oil and raw materials even as North Dakota, Canada and other
producing regions keep putting more energy commodities into the
market. Major oil producer Saudi Arabia is following Grand Forks’
merchants lead; it continues to place massive quantities of oil on
the market to maintain its market share even though prices are
falling.
Then, there is the one thing about the
U.S. dollar that haunts Northwestern Minnesota farmer Don Loeslie, a
former president of both the Minnesota and National Associations of
Wheat Growers. The dollar is the residual currency of the world and
is used to price trade in commodities, most manufactured products,
and most loans and financial transfers.
“It looks to me like we are heading
back to where we were in the 1980s,” Loeslie said. That, he added,
would be rough for all of northern resource-based industries and most
likely for the neighboring Indian enterprises in amongst the forests,
mines and farms.
To fight inflation lingering from the
Vietnam War, the Federal Reserve Board tightened the money supply and
ran up interest rates that, in turn, discouraged inflationary
borrowing and business expansion. It stopped inflation in its tracks;
it also brought painful, unintended consequences.
The U.S. economy went into a severe
recession in 1981-82. In a paper presented to the Minnesota
Legislature in 1983, University of Minnesota-Duluth research
professor Jerrold Peterson noted that Northeastern Minnesota, or the
Arrowhead Region, lost 7 percent of its gross state product in those
two years and 11,000 jobs across the mining, forestry and tourism
industry sectors. Unemployment rose to 20 percent of the regional
labor force by the end of 1982.
While this was going on, Third World
countries that had debts written in U.S. dollars and with flexible
interest rates had to sell everything they could produce and
sometimes the office furniture just to keep current with
international debt payments. Latin American debt in 1983 was equal to
325 percent of all Latin American export earnings that year. This was
much like the challenge Greece presents to Europe today.
Peterson warned the Minnesota
Legislature that it could get worse for the resource-based economy
that drives life and standards of living in rural areas. He was
right. While the broader U.S. economy started a recovery in 1983,
rural resource areas endured a sustained 1982-1987 recession that was
widely called the “farm financial crisis.”
This is what farm leader Loeslie
remembers so painfully. But it wasn’t just farmers and farm
communities throughout the nation that took a beating. The mines were
shutting down or slowing down while Pittsburgh steel mills imported
iron ore from Brazil and Peru with the strong import purchasing power
of the dollar. Loggers couldn’t haul a stick out of the north
woods; paper was imported form Northern Europe and parts of Asia,
lumber wasn’t needed when no one was building anything.
The strong dollar choked trade,
throughout the world. Nigeria stopped buying grains from Argentina
and Brazil. Mexico stopped buying wheat from Canada. At a 1987
conference in Duluth on U.S. and Canadian agricultural and maritime
policies, it was noted that world grain trade declined by 40 percent
by 1985 from a then-high mark set in 1981. The U.S. share of the
world wheat market fell from 48.2 million metric tons to 25 mmt. In
course grains, the U.S. share of the market fell from 70.7 to 36.4
million metric tons in those years. Duluth and Great Lakes shipping
got clobbered with the farmers.
“When you look at events around the
world and at falling commodity prices, we may be heading down this
path again,” said Loeslie.
Baragar and Bohr, the academic trade
watchers in Manitoba and Minnesota, both said it is difficult to
predict cross-border tourism. Far more detailed analysis is available
for forecasting world trade and commodity markets. What’s more,
good fortune could make for an economic recovery bringing sunshine
through what now look like storm clouds.
Yet Bohr, the state
Trade Office director form 1988 to 1991, said Indian communities and
all people along the resource rich northern border should keep a
cautious watch on the currency markets. “We know what a strong
dollar did before.”
