Minnesota manufacturers brace for lower profits, curb expansion plans because of tariffs

Mission Outdoor is gearing up for boating season, knowing that up to 25% of its profit could be erased by President Donald Trump's aggressive and global new tariffs plan.

That's a lot to absorb for any company, but smaller businesses tend to be hit harder by inflationary shifts.

"It's a huge challenge for us. And that's just going to be the case for anybody who's importing anything," said Mission Outdoor CEO Corey Uchtman. "Is it painful? Absolutely."

The 40-person Eden Prairie manufacturer designs water gear and boating accessories. About half are made in the U.S. The rest ships from contract manufacturers in China, Vietnam, Taiwan, Canada and Mexico.

That's where things get dicey.

Trump last week enacted baseline 10% tariffs for all goods entering the U.S. But items from some nations will face much stiffer fees. For example, on Wednesday, import tariffs will leap to 34% for China, 46% for Vietnam, 32% for Taiwan and 20% for most of Europe.

The abrupt spike sent many small companies - Mission Outdoor included - to scour profit-and-loss sheets, redo budgets and search for possible supplier swaps as ways to help mitigate Trump's tax hikes.

The biggest issue for many companies is the uncertainty of Trump's policies. His tariffs have already changed more than once.

"This chainsaw method, the rapid pace and the kind of the chaos of the unknowns, I think all manufacturers agree is just too much right now," said Steve Kalina, chief executive of the 300-member Minnesota Precision Manufacturing Association.

One association member was so concerned about Trump's escalating trade wars that he scrubbed plans to build a new factory. Other members are re-examining capital expenditures they had planned for 2025 and 2026.

Many of the small manufacturers in the association, Kalina said, tend to be conservative and applaud Trump's intentions to erase trade imbalances and re-shore manufacturing to the U.S.

"But I'd say the biggest concern right now is the just the unknown," and how higher prices caused by the tariffs could inhibit spending and slow down production, Kalina said. "Even if there is a good outcome eventually, our manufacturers are asking, 'How painful is it going to be to get there?' "

The manufacturers in the association run the gamut from medical device and aerospace industries to the auto and industrial sectors.

Bob Walloch, who started a cannabis company in 2022, is delaying plans to open a $1 million cannabis products manufacturing plant. With new steel and other tariffs, the cost of HVAC, air filtration, watering systems, lights and other equipment is rising about 15% to 20%.

"It's crushing. It's slowing our plans down," he said.

Other manufacturers say they might benefit some from the tariffs, even fairly soon. Uchtman hopes Mission could be one of them.

If the company finds overseas competitors suddenly jack up prices in response to the U.S. tariffs, Mission Outdoor products could become "significantly" more attractive, so revenue might go up. Uchtman also said there's some sentiment that more Americans will search for U.S.-made goods, which would benefit sales for all the products he makes in Eden Prairie.

At Twin Cities Die Castings Co., 175 employees use domestic recycled aluminum to make electrical enclosures, mirror mounts, transmission wire cages and other parts for the auto, aerospace, medical device, computer and defense industries.

CEO Todd Olson thinks in the long term, the tariffs will "likely end up being a positive for us."

His products right now tend to run about 40% higher than those from China. With the tariffs, the company might get some new contracts since the price will even out more, he said.

Still, there are worries.

Olson traveled to Mexico City last month and noticed the number of custom machine shops there had jumped from 50 to 300 in a few years. Many of the newcomers are Chinese-owned. Meanwhile, the number of die-casters in the United States dropped from 400 to 300.

"The competition in Mexico in our industry has been very intense," Olson said.

About 15% of Twin Cities Die Castings' components are sold to customers in Mexico that further assemble the parts and ship them back to the United States for final assembly.

With Trump's new global 10% tariff, that back-and-forth action across borders could become costly. Plus, Trump continues to threaten to increase tariffs on Mexican goods from 10% to around 25%. For now, Olson's watching the situation closely.

But the overall auto sector is cutting back, said Daniel O'Neill, industrial products sector advisory leader at PricewaterhouseCoopers.

In response to Trump's tariffs, Stellantis on Thursday paused production at its Canada and Mexico auto parts operations. The company also laid off 900 auto parts workers in Michigan and Indiana.

Other layoffs like this are "going to start rolling through predominantly assembly plants," even though many U.S. factories tried to plan ahead by preordering lots of inventory in anticipation of fresh U.S. trade tariffs, O'Neill said.

The sell-off on the stock market at the end of last week does not help matters, O'Neill said.

"If this got resolved in a week, maybe it wouldn't be that big of a deal, and it will just be this blip in the market," O'Neill said. "This one doesn't feel like that. This one feels a little bit more permanent [and] will be a little bit longer lasting before it resolves itself. Overall, I'm hopeful, because there are negotiations that will occur."

The lack of capital expenditures and the increases in material costs are trickling down to contractors.

Costs for Tri-Construction, which employs 80 workers, started skyrocketing when a 25% import tax on all steel and aluminum took effect last month, said CEO Calvin Littlejohn.

Last month, Littlejohn's bill for a truckload of steel wall studs used in drywall construction increased 20%. Last week, he received a notice they were going up another 10%.

Other construction owners said they are paying much more for supplies ranging from electrical switch boxes to aluminum heating ducts.

"As distributors raise the price, they're raising it on everybody," Littlejohn said. "None of us are going to be able to dodge that."

As a result, construction projects will be more expensive, he said.

At the end of last week, Alex Danzberger, CEO of Aprios Custom Manufacturing in Brooklyn Park, was bracing for the effects his company will face.

"There will be disruption in the marketplace. It'll make things a little bit bumpy, I'm sure, for a little bit," said Danzberger.

The contract manufacturer has 85 employees and uses imported resins and metal tooling to make surgical equipment, engineered components for medical device firms and parts for water treatment facilities, the U.S. Department of Defense and other customers.

"Those new higher costs will be passed onto our customers," Danzberger said, adding the situation could shave 2% to 5% from revenue growth. "Price obviously is a major factor for whether people choose to buy a product or not."

Danzberger said customers have asked Aprios to find and switch to cheaper resins and molds that are made in the United States.

That's not always possible, he said. Sometimes there is no U.S. producer, or it's simply not less expensive. And sometimes the alternative resin just isn't as strong.

"With petrochemicals, the onshore manufacturers of resins are much more expensive than the offshore manufacturers, and that has to do with [U.S. costs tied to] environmental protections and labor and everything else," Danzberger said. "We have a couple of cases ... where there's probably a 35 percent difference in price between domestic sources versus offshore sources."

Danzberger, like others, is trying to do the math, but with unknowns, it's hard to figure out if the tariffs will eventually equalize costs.

"Will this soften my business a little bit? It probably will, which I don't like," he said. "But I think it will stabilize. At least, I'm hopeful. I understand President Trump's objectives with this stuff. I do think that the United States has, by and large, been on the short end of the stick in terms of tariffs."

In the long term, Danzberger hopes reason will prevail, so there is a reset "to get to something that works as opposed to disrupting global trade."