[Source/Observer Network Wang Yi] From smartwatches and mobile phones to medical devices and helicopters, submarines, etc., there are loudspeakers. Most of these loudspeakers are powered by permanent magnets made in China. The tariff war initiated by the Trump administration has forced thousands of American loudspeaker manufacturers to reconsider their supply chains.

According to a May 21 report by the "Nikkei Asian Review," in recent weeks, Dan Digree (Dan Digree), CEO of American loudspeaker manufacturer MISCO who has been trying to sort out the supply chain in Southeast Asia, wants the U.S. government to understand two things: procuring magnets outside of China is not as simple as it seems; tariffs make it more difficult to manufacture magnets in the United States.

"This is quite a complex technology and also a very specific one," Digree said. "Based on our experience, we found that suppliers within China can be interchangeable, but once you leave China, even if you get something, it's different."

Digree introduced that many defense customers of MISCO do not want any components of the loudspeakers to come from China, but at this stage, he has to tell them that there is no other choice, and the short-term options are all about "how much participation from China you are willing to accept."

CEO of MISCO, Dan Digree Foreign Media

In a loudspeaker, perhaps the most irreplaceable part might be the magnet. The "Nikkei Asian Review" pointed out that for many devices such as helicopters, submarines, and military headphones, rare earth permanent magnetic materials neodymium iron boron magnets are indispensable because they can reduce the weight and size of the equipment while ensuring the sound quality of the speaker.

"When you talk about size, weight, and performance, this is a huge issue," Digree said, noting that compared to similar ferrite magnets, neodymium iron boron magnets require only about 1/10th of the neodymium material, thus reducing the equipment weight by 90%. "Rare earth magnets really change the performance of the speaker."

However, after the United States imposed excessive tariffs, China implemented retaliatory export controls on seven categories of medium-to-heavy rare earth elements, which caused concern among American buyers.

Last week, an American company that claimed to produce "non-sensitive commercial audio equipment" expressed concerns to the Hong Kong "South China Morning Post." This company purchases magnets containing trace-controlled elements from China for its factories in Europe and Latin America. Due to the current export approval process taking at least 45 working days and Chinese authorities requiring a guarantee letter stating "the product does not contain controlled elements," its overseas assembly lines are facing inventory depletion.

The company stated in a declaration, "The delay in export approvals will disrupt our production and have adverse effects on the production plans of downstream automotive manufacturers, including potential production halts," "Long-term unresolved issues will cause catastrophic financial impacts, including plummeting revenue and supply chain disruptions."

The "Nikkei Asian Review" reported that MISCO is currently fortunate, as the magnets they use do not contain terbium and only contain small amounts of dysprosium, thus not being affected by China's export control. Their batch shipped in mid-April was successfully delivered, but the U.S. government's tariff policy affects the company's operations in other ways.

Digree said that magnets are the most expensive components in speakers. Even if the United States could produce alternative magnets in the future, their cost would be high. This may lead to manufacturers having to use less ideal materials when designing speakers to keep prices down.

MISCO Factory MISCO Website

MISCO is the kind of manufacturing company that Trump mentioned, the type he hopes will thrive. It is one of the few loudspeaker manufacturers still producing in the United States, with its American factory producing one million speakers annually and employing 100 workers, yet still needing to import some components from China.

Digree believes that Trump's tariffs have had counterproductive effects, not only increasing the cost of importing necessary parts but also encouraging "us to produce more speakers in China rather than fewer."

Each time goods and their components cross the U.S. border, tariffs are levied. Manufacturing in U.S. factories results in multiple taxation of each stage of the production process, whereas for some products, overall production overseas faces fewer tariffs. Digree noted that this has led manufacturers to consider manufacturing in foreign factories rather than in U.S. factories, choosing instead to produce in China and then ship to another factory in China or South Korea for the next production step. "The entire supply chain now seems like, 'Let's move out of the U.S.'" he remarked.

MISCO is not an isolated case. According to a survey conducted by CNBC in April, 57% of companies said that high costs would prevent them from relocating manufacturing back to the U.S. If they were to bring manufacturing to the U.S., 81% of companies hope to automate more jobs rather than hire workers. Slightly over 60% of respondents said that transferring the supply chain to countries with lower tariffs is more cost-effective.

Digree pointed out that although recently the U.S. and China have temporarily ceased hostilities for three months and reduced tariffs, fluctuations still exist.

Trump stated last week that even if no long-term agreement is reached between the U.S. and China after 90 days, tariffs on China will not return to 145%, "but they will rise significantly."

"What happens after 90 days?" Digree sighed, noting that MISCO has been established for 75 years, and he has been running the company for 40 years. "We've been through a lot, and we'll get through all this, but the trade war is really unnecessary."

This article is an exclusive piece by Observer Network and cannot be reprinted without permission.

Original Source: https://www.toutiao.com/article/7506781072203366975/

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