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President Donald Trump has imposed, halted, raised, and lowered tariffs on trading partners at a dizzying pace since taking office. That's left American businesses and their overseas suppliers scrambling to catch up. Some of those American companies are fighting back, taking the tariffs and the president to court. Take Learning Resources. The Illinois company makes kids toys and educational games like
the cod and Go Robot Mouse. Their products are sold on Amazon and at major retailers like Target and Walmart, and made for the most part in China. Learning Resources has taken a big hit in the US China trade war. In April, the company sued the Trump administration over tariffs and won the case in a district court, but the ruling is currently on hold other hearings. Here's CEO Rick Woldenberg.
First and foremost, we believe that the tariffs are illegal and they were creating really a perilous situation for our business. So we didn't feel as though we had the alternative to just wait and see what happened.
For now, Trump has lowered his tariffs on Chinese goods, and both China and the US have agreed to a tariff truce that will last until August. Loomberg's Lucio lu who covers China's government and economy out of Beijing, says Chinese suppliers of American companies are still hurting.
We hear these stories of exporters on the phone with their buyers, you know, on the verge of tears, talking about the people they have to let go, and then the prospect of shutting down some of these factories, in many cases decades old businesses, and then this overnight mad dash to make shipments to catch that ninety day window. So it's you know, it's been a roller coaster.
This is the Big Take Asia from Bloomberg News. I'm wanh. Every week we take you inside some of the world's biggest and most powerful economies and the markets, tycoons and businesses that drive this ever shifting region. Today on the show, the difficult conversations that American companies are having with their Chinese suppliers, and how one toy maker is going to court to fight tariffs. From aircraft parts to baby strollers. American companies have been sourcing goods made in China for decades.
So when President Trump announced he would impose wide ranging tariffs on Chinese imports. It put a lot of American business owners, including Chicago's Rick Woldenberg, in a difficult spot.
I'm the CEO of Learning Resources and also a company called hand to Mind located in Vernon Hills, Illinois, outside Chicago.
Learning to build learning ones, twos and threes, learning about science and learning with ease.
Our family business dates back to nineteen sixteen. The two companies, Learning Resources and a hand to Mind specialized in educational materials for schools and educational toys for the home. We sell our products in over one hundred countries and we have over five hundred employees.
Rick. When you follow the lawsuit in late April against the Trump administration over the tariffs, Trump was talking about raising the levee on Chinese imports to one hundred and forty five percent. Now that's a huge spike from the roughly twenty percent tariff that was already in place when he took office. How would a one hundred and forty five percent tariff affect your business?
So at one hundred and forty five percent, we took our twenty twenty five plan and calculated how much that would cost us to implement everything that was in the plan at the beginning of the year before the Trump administration, the actual money that we paid in twenty twenty four was two point three million, and the cost for twenty twenty five under that plan was about one hundred point
two million dollars. More than ninety five percent of the one hundred million came from imports from China, so it was all about China.
Recently, the US and China agreed to diffuse trade tensions, with Donald Trump saying they reached a deal effectively keeping the tariffs at fifty five percent. That's thirty percent extra on top of the twenty five percent from his first term. How does that impact your businesses.
It's hard to estimate, because of course who knows what the rates will be. But I estimate the number now is twenty to thirty million. And we still have to pay income taxes if we actually have any income. So it's not survivable at that number either. It's inflationary, and we're a tax collector now.
So what you're saying is this is a tax on American businesses and the American consumer. But that's not how President Trump sees it. He argues that foreign countries and companies will be paying the tariffs and the US government is collecting taxes from them. What's your take on that.
That's gaslighting. That's just a plain old untruth. I pay that bill, ask my CFO. I borrow it from JP Morgan, and I give it to US government and then I hope I sell enough products to get it back. The Chinese government is not paying it. I pay it when you hit us and hundreds of thousands of other businesses collectively with a six hundred billion dollar tax bill. We fall below normal profit, so we can cut some costs, but we still have to pass on some of that
in order to remain financible. So Chinese has nothing to do with this, and we don't do business with the Chinese government. And that's just plan in simple fiction.
I can see how it must be to do business when you have no idea what might happen in the future with these tariffs, but with a trade war unlikely to end anytime soon, what are you doing to make the numbers work?
We cut our spending to shreds. We have obtained modest concessions from Chinese vendors, principally who've generously tried to help us out. We've raised prices. We've tried to make the price increase as modest as we could. We're a mission driven business. We look at raising prices as a problem because we know that at some point some people drop off, and then that child won't have that opportunity. So we have a responsibility to manage our business to do the best we can to keep the prices down.
You've cut costs, you raise prices. You've also moved some of your production outside of China. How much of your toys are made in China? And how do you think about manufacturing there now?
That probably we were seventy five or eighty percent at peak, there was no reason to calculate it. In the past. China was our preferred number one manufacturing market, where we had longest relationships and we had the widest diversity of capabilities. They were usually the most competitive market, most efficient market, and so they generally earned a lion's share of what we did. After Trump one point, Oh, we believed that the clock was ticking, and our fear was not mister she.
I don't have any opinions about mister she. Our fear was American politicians, and so we began a process two or three years ago of really building up a supply chain in Vietnam and India. So we had about sixteen percent of our product out of Vietnam and India. Heading into the year, we were about sixty percent China, which is low for our industry, but we now know not low enough. We've told our factories they need to move, and we've told them that it's an urgent matter, and
we told them we have to move. There are some products we will continue to make in China, so some educational products can be brought in at an advantageous rate, and so we'll leave them there. But on things where we really can't move it out of China, we're faced
with a very difficult choice. And some products may disappear from the market for a period of time, but we won't produce the product at a price we don't think we can sell it, and so we can't buy certain products above a certain cost, and so we just probably will drop them or hibernate them until we can figure out what to do.
What is the process of moving out of China to places like Vietnam and India been, like.
It's really a building the plan while you fly it kind of situation we're seeing, not surprisingly because it's a synchronize catastrophe for everybody making everything in China, So everybody making everything is moving everything someplace else, so you have a big synchronized supply and demand imbalance. We've picked up new factories, but the thing about finding a manufacturing partner is that you really have to develop a manufacturing partner.
You can do with other places, but it's hard and very often there's something missing, and it's also generally more expensive because the volume isn't there.
So Trump says he's raising tariffs so that companies would be incentivized to bring back manufacturing to the US. How realistic is that?
The jingoistic desire to have things made in the US is a sort of recurrent theme. It comes and it goes. And so for many years, at least ten, we've looked for any factory that would work with us to make anything. We have over two thousand products, ten products that are made in the USA. So we go to a retailer and say, here, made in the USA, can't do it. And so I firmly believe that there is no capacity to make the kinds of products that we make. We're
going to stay in this business. We can't make the stuff in the US. Nobody wants to make it. The US market is not set up for this. This is a high service, high intellectual property marketplace. US people need to earn more money than you can pay to make toys, and there just aren't enough people who've invested in this very low tech business to compete with Asian countries who can do this at a much lower cost.
After the break, how Chinese manufacturers are dealing with Trump's tariffs on the ground. To blunt the pain and uncertainty of tariffs, American businesses that have long relied on Chinese made goods are now looking to other countries to diversify their supply chains. That's put Chinese manufactures under immense pressure. We spoke to Bloomberg's Luciulu to get a sense of the scrambling on the ground.
We finally had some numbers that really showed us how much damage was done. So Chinese exports the US fell about thirty five percent almost in May compared to the same period last year. The most sense the pandemic when the economy almost basically had to shut down, so these aren't small numbers, and of course that sharp decline of exports to the US more than offset the rise in exports of Chinese goods to other countries that was about eleven percent.
So it really shows sort of the heft of the US.
Economy and how much Chinese exporters have suffered because of the tariffs.
Now, despite that slow down of exports falling the motions twenty twenty, we were also seeing record shipments from China. How is that also true?
Yeah, so I think there's a lot of things going on. There's of course front loading orders, there is some rerouting going on, and also importantly, we have seen that export volumes have grown much faster than values. So that indicates that although the volume is up, the prices are falling and that makes Chinese goods more competitive. But then that also has led to sort of these accusations of dumping. It obviously undercuts competitors in other countries, and that's increased
tensions with trading partners, not just the US. Of course, the EU has also been very vocal, So those factors are creating additional trade tensions.
Lucille, I'm sure you talked to many Chinese factory owners who make goods for American companies like learning resources. What have these factories been doing in response? What's their contingency plan?
Yeah, so, I mean some of our colleagues spoke to one of the suppliers to learning resources, and this company has settled on the China plus one strategy. I think they're at where a lot of Chinese factories are at, which is, in the short term, we want to crank things out, we want to ship as much as possible. But in the long term, decoupling is going to happen, and we need to have a long term strategy. And having a factory elsewhere is sort of one of the
most popular strategies that these factories have pursued. So this particular factory, they're going to Vietnam. They're going to be an operation next month. But everyone can see that that's going to be a long process. No one is going to be able to replace the US as the customer. In the short term. I think people are just settling in for just tougher times.
What are they telling you about the challenges they're facing.
There's been a lot of surprises from many of them. Skilled les laborers come up as one of the top concerns. Many of these factory owners say it's very hard to find factory workers as trained as the Chinese workers who have been doing this for many, many years, and so they have had challenges finding skilled workers, getting them to work as long hours as they can in China, and then also guaranteeing the quality that they have been able
to for their buyers. So that's been a challenge. Of course, the personal cost of moving away from family is a major one, and each of these different countries also have different rules which they're still navigating.
And Lucille, what does all of this mean for consumers in the States at the moment?
I think it's higher costs, and some of them may already be seeing that happen. We know that meeting that Trump had with major retailers including Walmart, Home Depot, Target, and that idea and the fears of empty shelves potentially being a driving factor in some of the trained negotiations because it has such a big impact for US consumers, especially as in years holiday seasons and as we get closer to the later half of the year Christmas. So that's a big concern for the US. In addition to
the Chinese exporters. No one is left unscathed. If you are shipping to the US, you are having these conversations and that spent a lot of hard decisions for these exporters.
Thanks Lucillo for joining us.
Thank you, thank you so much.
This is The Big Take Asia from Bloomberg News. I'm wanha. To get more from The Big Take and unlimited access to all of Bloomberg dot com, subscribe today at Bloomberg dot com slash podcast Offer. If you like the episode, make sure to subscribe and review The Big Take Asia wherever you listen to podcasts. It really helps people find the show. Thanks for listening, See you next time.