Minnesota CEO: Trump tariffs are making it more difficult to do business in the U.S.

NINA MOINI: Business owners have been on a roller coaster this year, from tariff battles between President Donald Trump and leaders of China, Canada, Mexico, and other countries. And some businesses are pushing back against the tariffs that are meant to help them. So we checked in with one here in Minnesota.

Dan Digre is the CEO of MISCO Speakers, which has been making loudspeakers in the Twin Cities for 75 years. They sell their speakers to customers that make everything from airplanes to video games to fast food drive-throughs. MPR News senior economics contributor Chris Farrell met Digre at MISCO Speakers headquarters in St. Paul. Dan started by showing Chris his company's newest product.

DAN DIGRE: This is where we bring customers in and say, OK. Let's listen to this compared to that. Yeah, I've even got stuff you can listen to since you're more or less in the audio biz, right?

CHRIS FARRELL: That's what they say.

DAN DIGRE: Yeah, right? So I've got a bunch of stuff.

CHRIS FARRELL: This is a pretty big open room.

DAN DIGRE: Yeah, just sitting in a chair, and you've got a line of 12 speakers in front of you and some electronics. And I'm going to just play a track for you.

CHRIS FARRELL: OK.

DAN DIGRE: So what you're going to experience is 3D audio. Now, normally, to get spatial effects and things like that, you put on your earphones.

CHRIS FARRELL: Right.

DAN DIGRE: So we're trying to do that now without earphones. This is the haircut track. So you'll hear a voice, and you'll hear some scissors.

[AUDIO PLAYBACK]

- Now, I'm going to give you a haircut.

[SNIPPING]

I'm going to give you a haircut.

[END PLAYBACK]

DAN DIGRE: Our primary interest right now is trying to sell it to companies that produce gaming kinds of products. It's a way for the game to immerse you, pull you into the game. We're doing some work in Japan. I don't know if you're familiar with Pachinko, but Pachinko is like the national game of Japan. So we're introducing 3D audio to Pachinko. Let's go take a look at the manufacturing.

CHRIS FARRELL: OK.

DAN DIGRE: This is the manufacturing floor.

CHRIS FARRELL: I always love factory floors because it looks like organized chaos.

DAN DIGRE: Haha.

CHRIS FARRELL: There's so many things going on, and yet, you notice how neat everything is.

DAN DIGRE: Yes, we produce in this building somewhere between 2,000 and 3,000 speakers a day. But in the loudspeaker world, where there are billions sold every year, it's a drop in the bucket.

CHRIS FARRELL: And the markets are?

DAN DIGRE: MISCO is a very, very important company when it comes to US infrastructure. So we make speakers for aircraft. We make speakers for mass transit. We do speakers for medical equipment. We make a lot of speakers for defense, military applications. Now, we do other markets besides that. We do professional audio. We have a line of guitar speakers. We do a lot of speakers for gaming, casino gaming. So you think about it, loudspeakers are very fundamental technology. Everything with sound, everything with reproduced audio has a loudspeaker in it. So it's really, really critical. And I feel a commitment to my country that we maintain manufacturing capability in the US.

You can see that we have several different production lines. Line 1 and line 2 are more traditional, belt-driven assembly lines. This area over here is collaborative robots. And a collaborative robot is intended to work with people. So we're just experimenting now with how we build these same speakers we've been building for decades but building them with more automation and robotics.

Wyatt's programming right now is a little speaker that we're building for a medical application. It's a very, very small speaker, and these small speakers have not typically been made in the US before. Because they're small, they would be more typically made in Asia. But one of the things that we're experiencing is there's a lot of interest in moving manufacturing back to America in the loudspeaker industry, in a lot of industry. This is the opportunity that the moment is presenting for us. And that is how can we produce loudspeaker products in America that maybe have not been made here before? And these little micro speakers are an example of a product like that.

CHRIS FARRELL: So this would be to supplement your workforce. You'd be able to make more product here.

DAN DIGRE: Exactly. So yeah, the whole idea of adding this automation is not to replace people. It's more to make people more productive. So our goal is to be able to build more product in this location. So Wyatt is working on programming these robots, recent grad out of St. Thomas University here.

CHRIS FARRELL: Congratulations.

THOMAS: Thank you very much.

CHRIS FARRELL: So what are you learning from this?

THOMAS: So this here is just a pretty basic operation of the robot. There's about four steps in here to complete the micro speaker. So here we're just focusing on the pod assembly and just working on quality checks and learning what makes a quality speaker in addition to working with a robot and nuances that come with that.

CHRIS FARRELL: So how is the quality?

THOMAS: They're coming out great. I can show you here. We just have a feeler gauge, and we're just making sure that they are in compliance.

CHRIS FARRELL: This is a 75-year-old company?

DAN DIGRE: Yeah, 75 years.

CHRIS FARRELL: You've seen a lot.

DAN DIGRE: We've seen a lot.

CHRIS FARRELL: Including your father. How are tariffs affecting you?

DAN DIGRE: Tariffs are a real challenge. We've been dealing with tariffs since 2019. In 2019 were the Section 301 tariffs. Now, those were specifically tariffs that were put on goods brought into the United States from China.

CHRIS FARRELL: From China, that's right.

DAN DIGRE: There were a couple of lists. There was a List 3 and a List 4. And when the dust settled, List 4 was a 7.5% tariff. In our industry that included finished loudspeakers. So a loudspeaker made in China, imported in the United States, there was a 7.5% tax. Speaker parts, which are the parts that you saw out on the factory floor to build speakers, those come in with a 25% tariff. So we have what's called a tariff inversion, where the cost of component parts that you need to build in an American factory cost is at a higher rate than the tariff rate of a finished good coming out of China.

CHRIS FARRELL: And that appears to be the biggest impact, at least so far, of these tariffs. It's the inputs.

DAN DIGRE: For a lot of companies like ours, that's been the challenge, right? The automotive companies are experiencing this now, too, where they're trying to assemble their products with global supply chains. Any of us who use global supply chains-- we buy parts from China and Vietnam and Europe, et cetera-- these tariff increase the cost. It's an import tax, and it's a pretax. So it's applied at the port, and then the parts come into our factory. So we're already paying the tax up front.

Now, whether we sell the parts or not or we sell the components, it doesn't matter. We've already paid the tax. So unlike an income tax or a profit tax, where you've made something, you've sold something, you've made a profit and then you're paying a part of that in the form of a tax, this we're paying upfront. So it does impact cost of goods sold, right, which then can impact our competitiveness. We have a higher cost-- a higher bill of materials cost. So how do we become competitive when we have that? And that's, of course, the challenge that a lot of us in the US are facing now with these tariffs.

CHRIS FARRELL: Right, because you're talking about manufacturing here, wanting to keep the manufacturing here. Are you having to make some different choices now?

DAN DIGRE: Yes, and our customers are making some choices for us too. So, for example, we have a lot of customers who moved part of their assembly also out of the United States, in part because of the tariff situation. And so they're asking us to build our products outside the United States and then ship to their factories.

CHRIS FARRELL: So you're bypassing the US. You're going directly-- I'm making this up-- but going directly from China to Canada.

DAN DIGRE: Yeah, that's a good example, where rather than bringing the component parts into our USA factory and then exporting that to Canada, which is what we've been doing, they're saying, no, we want you to build that in Asia, direct ship it to Canada, and therefore, bypass the US completely. Now, that's not our preference. I've got an American factory. I want to build things in America. But our customers are forcing an economic reality on us.

CHRIS FARRELL: Well, I think that's one of the things. So your company's been around for 75 years, and the situation can be bad. But business adjusts. Start saying, well, what's the opportunity? OK. You've hit me with this.

DAN DIGRE: Right.

CHRIS FARRELL: What's the opportunity? So what is the opportunity for you?

DAN DIGRE: Well, the tariffs are a big challenge, but they're creating a big opportunity. And that is companies are also saying, hey, if I have a product made in the US, probably for US consumption of some sort, whether it's for mass transit, aerospace, defense, things like that, it would be better if that product was made in the US. So we have a lot of companies coming to us and saying, can you build it in your America factory? The challenge for us is now sourcing materials at a cost that can allow us to be competitive to do that.

Now, some of that sourcing will be in low-tariff countries. We still buy a lot of our materials from USA suppliers, so we want to utilize them as much as possible to put together then a business case for these companies saying we want it built in America. So we just have to find that spot where the additional cost of doing it here provides the necessary value that they're looking for.

CHRIS FARRELL: So is it fair to say business would have been easier for you without the tariffs?

DAN DIGRE: Well, sure. You spend a lot of time sourcing from other countries. So we've been spending the last six years resourcing. Our electronics used to be made in China. And about five years ago we moved all of our electronics manufacturing to Indonesia. There was no tariff in Indonesia at the time. So you're spending a lot of time moving things around, and that's not necessarily a value-added activity. It's not necessarily helping you innovate or bring new products to market, but it isn't. It's something you have to do in order to remain globally competitive.

CHRIS FARRELL: So as your business grows, despite all the challenges and the ups and downs, and you were showing us the automation, are you going to be able to produce more with less? Is your productivity going up?

DAN DIGRE: Yeah, our productivity will definitely go up. We will be able to build more out of this facility. So obviously, we have better facility utilization. Our people will be more productive because they will have automation tools to assist them. So each person can produce more. So yeah, there's a real upside in doing all of this.

NINA MOINI: That was MISCO Speakers CEO Dan Digre speaking to MPR News senior economics contributor Chris Farrell at the MISCO headquarters in St. Paul. Minnesota Now producer Ellen Finn put that story together.