Minnesota’s tribes face threat from currency markets

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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.”