The bulk of South Dakota’s exports are more in the crosshairs of a tariff war with three of the United States’ largest trading partners.
This comes as state lawmakers are putting the finishing touches on a tight budget.
Earlier this week, President Donald Trump announced 25 percent tariffs on goods from Canada and Mexico, as well as additional tariffs on Chinese goods. On Thursday, Trump said those tariffs on goods from Mexico and Canada are paused for one month.
Gov. Larry Rhoden said the state has weathered a trade war in recent years.
“As I’ve thought through this — I remember back eight years when we had kind of the same situation and President Trump at that time said, ‘trust me.’ We did and it worked out pretty well.”
But those 2018 tariffs were limited to China. The Asian country responded by targeting US agriculture exports, which plunged during that time.
While the U.S. government responded with billions in aid to US farmers, farm debt, delinquencies and bankruptcies rose during that time.
Now, those tariffs threats are closer to home and the federal government is signaling its intent to cut spending.
According to the US Trade Representative, in 2024 South Dakota exported $2.1 billion dollars’ worth of goods. Forty five percent of those exports went to Canada.
Some say tariffs and retaliatory tariffs create a real problem.
“I think if you’re in the soybean business, the corn business, any cattle, livestock business, you should be concerned. Most people are. I think it’s the uncertainty we’re all concerned with," said Doug Sombke, president of the South Dakota Farmer’s Union. "If there’s some end game that we knew, if there’s light at the end of the tunnel, but we don’t know what that is."
About 20 percent of the state’s exports went to Mexico in 2024.
Farmers and ranchers are nervous about the fast-moving trade war.
“Our policy actually calls for other negotiating methods rather than tariffs. We would rather see him use those as a last resort," said Scott VanDerwal, president of the South Dakota Farm Bureau. "He doesn’t see it that way and he’s going to do what he’s going to do and that’s fine.”
VanDerWal said the hope is the duration of the tariffs are short lived.
Trump originally planned the tariffs to force the country’s neighbors to do more to stop migration and drug trafficking.
While farmers and ranchers are hoping the tariffs are part of a brief negotiation tactic, that approach might undermine other reasons for them — like onshoring more domestic manufacturing.
“It’s not good to be going, ‘Well are they going to be remaining in place? How long are they going to remain in place?’" said Ernie Goss, an economist at Creighton University. "That creates so much uncertainty because you’re talking about one of the goals having companies reshore — move back to the U.S. Well, you can hardly do that if you think they’re going to be temporary in nature.”
According to the Minneapolis Federal Reserve, farm incomes in the region have fallen steeply for eight straight quarters. As cashflows weaken, a survey of the region shows demand for loans increased, while loan repayment dropped.
“Those lower incomes mean that farmers have higher demand for operating loans because they maybe have less cash on hand to finance their operations," said Joe Mahon, director of regional outreach with the Minneapolis Federal Reserve. "This happens at a time where interest rates are higher. So, that’s kind of a bit of a double whammy effect.”
Part of what’s driving the state’s lean budget outlook is the slowdown in the farm economy. That effects sales tax collections. Implement sales are down.
“I’ll just say we’ve got to watch these things real close," said State Senator Ernie Otten, R-Tea, co-chair of Joint Appropriations, the committee that crafts the state budget.
He said the effect of tariffs on commodities is one thing — but he’s also watching how the Trump administration slashes spending.
“The feds have to do what they’re doing, but when you look at a $7 billion budget and half of that is already coming from the feds — whatever they touch affects us greatly," Otten said.
Otten said state lawmakers are focused on crafting a budget for the coming year based on the factors before them. Otten said the committee will watch revenues and federal dollars closely in the coming months.
“The trick is which one of those are going to touch us the first? I do expect the JCA, as we work during the summer, we’re going to be busier than we’ve ever been before," Otten said.
But first, lawmakers must finalize crafting a budget for the upcoming fiscal year. They have until Thursday to do so.
