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Minnesota’s tribes face threat from currency markets
Tuesday, August 04 2015
 
Written by Lee Egerstrom,
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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.”


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