Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Do you want to look at it number seven or
Speaker 2: do you want to look at something else? Okay, a
Speaker 2: clear one.
Speaker 3: This summer, Dylan Brochar's four and seven year old daughters
Speaker 3: got hooked on a British cartoon that teaches kids about
Speaker 3: counting and math.
Speaker 4: One bird, Hello bird, one tree, Hello tree.
Speaker 3: The stars of Number Blocks are bright, playful characters built
Speaker 3: from stackable plastic blocks, with faces and hands that bring
Speaker 3: them to life. They've captured the imagination of young kids everywhere,
Speaker 3: including Dylan's youngest daughter.
Speaker 2: She'll just sit and watch it and she'll sing the
Speaker 2: song because one and one.
Speaker 1: Mate two another one is that's three.
Speaker 5: It's calling for her.
Speaker 3: The characters from Number Blocks are licensed by an American
Speaker 3: toy maker, Learning Resources, which produces the line of toys,
Speaker 3: and naturally, Dylan's daughter wanted a set of her own, like.
Speaker 2: Any other consumer, would you know. I got on Google
Speaker 2: and found where to purchase them, and I think the
Speaker 2: cheapest set we could find it was just like a one,
Speaker 2: two and three blocks, so three little tiny toys. It
Speaker 2: was you know, twenty dollars and the smaller sets were
Speaker 2: twenty five thirty dollars each.
Speaker 3: The price gave Dylan pause. He and his family live
Speaker 3: in what he calls the cornfields of Indiana. As a
Speaker 3: seventh grade science teacher, Dylan keeps a careful watch on
Speaker 3: the family spending. In June, Learning Resources raised prices on
Speaker 3: its toys by an average of six percent, which bumped
Speaker 3: most number blocks up by a few dollars. That may
Speaker 3: not seem like much, but for Dylan, who's seen costs
Speaker 3: of everything from groceries to toys climb this year, the
Speaker 3: increase was too steep.
Speaker 5: You're getting less stuff for the same amount of money.
Speaker 2: It's not in the budget to buy multiple sets of
Speaker 2: prices of toys that are, you know, continuing to go
Speaker 2: up the same way everything is.
Speaker 3: The girls did get their number blocks, but it wasn't
Speaker 3: from Amazon or the stores.
Speaker 5: Are you going to come helping me? Send it to
Speaker 5: the printer?
Speaker 3: Baby, Dylan sat down at his computer, designed the characters himself,
Speaker 3: and printed them out on his home three D printer
Speaker 3: for a fraction of the price the amount.
Speaker 2: Of plastic that I use on It's less than fifty
Speaker 2: cents for a little doll So it's it's crazy.
Speaker 3: For Dylan, it was a thrifty hack to save money
Speaker 3: for learning resources. It's a troubling tipping point when prices
Speaker 3: climb too high. Some consumers don't just cut back, they
Speaker 3: walk away altogether. But the company felt it had no choice.
Speaker 6: We did that to kind of balance the books, if
Speaker 6: you will.
Speaker 3: Rick Woldenberg is the CEO of Learning Resources.
Speaker 6: We raise prices middle single digits and we're trying to
Speaker 6: make that stick. By that, I mean we're trying to
Speaker 6: hold there. I really don't want a penny relating to
Speaker 6: tariffs that I don't.
Speaker 3: Need, Rick says Learning Resources price increase was driven by
Speaker 3: President Donald Trump's tariff hikes.
Speaker 1: Here is the deal that I will be offering to
Speaker 1: every major company and manufacture on Earth. I will give
Speaker 1: you the lowest taxes.
Speaker 3: Since the start of his second term, President Trump has
Speaker 3: imposed sweeping tariffs, most notably on China, where most toys
Speaker 3: are made. The policy was billed as a way to
Speaker 3: boost US tax revenue and push brands to bring manufacturing
Speaker 3: back home, and Trump insists that foreign countries and companies
Speaker 3: would be the ones footing the bill. Here he is
Speaker 3: on c SPAN during his campaign.
Speaker 1: A tariff is a tax or to foreign country that's
Speaker 1: the way it is, whether you like it and that
Speaker 1: a lot of people like to soil, or it's a
Speaker 1: tax or US No, no, no, it's a tax on
Speaker 1: a foreign country.
Speaker 3: That's not the way things have turned out for Learning Resources.
Speaker 3: About half of its products are still made in China,
Speaker 3: where tariffs hit one hundred and forty five percent in April,
Speaker 3: though that's now been reduced to thirty one percent. The
Speaker 3: company has accelerated its shift from China to neighboring Vietnam,
Speaker 3: where exports to the US face a twenty percent levy.
Speaker 3: But tariffs aren't paid by the foreign factories that make
Speaker 3: the toys. They're paid by the importer when goods are
Speaker 3: brought into the US, in this case Learning Resources.
Speaker 6: And that's actual cash out the door from US, not
Speaker 6: from China or India or Vietnam. No countries are paying it.
Speaker 6: We write the checks, we borrow the money from the bank,
Speaker 6: and send the money to the government.
Speaker 3: In twenty twenty four, the company paid about two million
Speaker 3: dollars in tariffs. This year that's jumped to about fourteen
Speaker 3: million dollars. Like many American companies manufacturing overseas, Learning Resources
Speaker 3: front loaded inventory before higher levees took effect. That's helped
Speaker 3: it to avoid passing the full cost onto consumers. But
Speaker 3: that wasn't the only battle it took on. In April,
Speaker 3: the company took its fight to court, arguing the president
Speaker 3: lacked authority to impose tariffs. The case now sits before
Speaker 3: the Supreme Court. Rick is hopeful the court will rule
Speaker 3: the tariffs illegal, but if it upholds administration's levees, he
Speaker 3: says his company won't be able to hold on much longer.
Speaker 6: No American consumers should kid themselves as to who will
Speaker 6: pay this tax. We can't absorb it, and they're kidding
Speaker 6: themselves as they think that companies will absorb it. They
Speaker 6: will just pass it on, maybe not all in one go,
Speaker 6: but they will preserve their margin in order to remain viable.
Speaker 6: And that means foreign countries are not paying less tax
Speaker 6: and US companies will pass it along. So you know
Speaker 6: who's going to pay it you.
Speaker 3: This is the big take Asia from Bloomberg News. I'm wanha.
Speaker 3: Over the past year, we followed an American toy company
Speaker 3: as it fled China and scrambled to rebuild its supply
Speaker 3: chains in Asia. Today, in our final chapter, we see
Speaker 3: what the tariff chaos looks like when it lands on
Speaker 3: American shores, when the bill finally comes due, and how
Speaker 3: one family owned toy maker is pushing back in the courts.
Speaker 6: This warehouse is three hundred and fifty six thousand square feets.
Speaker 6: It's about a half mile around on the PREMI at her,
Speaker 6: so if you walked along the wall in a circle,
Speaker 6: that'd be about a half a mile.
Speaker 3: Rick Woldenberg is taking us on a tour of what
Speaker 3: he calls his Shiny Penny in Burning Hills outside of Chicago.
Speaker 3: It's a warehouse the company built four years ago, and
Speaker 3: it holds nearly all of learning resources two thousand or
Speaker 3: so products. When you order one of the company's toys
Speaker 3: online the Noodle Puzzles or Botley the coating Robot, chances
Speaker 3: are it will come through here. The space stretches out
Speaker 3: like a canyon, and Bayer belt crisscross the floor, while
Speaker 3: shelves stacked more than thirty feet high are loaded with pallets.
Speaker 3: On the floor, a worker moves through the aisles, pulling
Speaker 3: individual toys from the shelves and packing them into cardboard
Speaker 3: boxes that make their way through the factory.
Speaker 6: So if you see she's wearing a headset, so that's
Speaker 6: voice to pick. And on her arm she has a
Speaker 6: little display, and on her finger she has a scanner.
Speaker 6: And then she just scanned the products, scans it out
Speaker 6: of its pation, scans it into the box.
Speaker 3: As Rick shows off the plant's technology, he says he's
Speaker 3: frustrated by the Trump administration's narrative that companies importing goods
Speaker 3: into the US are somehow bad actors that don't invest
Speaker 3: at home, and that if you tax those companies heavily enough,
Speaker 3: they'll be forced to build factories in America.
Speaker 1: Companies know that if they build in America, there are
Speaker 1: no tariffs, and that's why they're coming home to the
Speaker 1: USA in record numbers. They're building factories and plants and level.
Speaker 7: The main thing that the Trump administration is trying to
Speaker 7: accomplish with tariffs is to make those goods from overseas
Speaker 7: more expensive, so that the companies rethink where they buy
Speaker 7: them from and source them in the US if they can.
Speaker 3: Brendon Murray is Bloomberg's Global Trade editor. He spent much
Speaker 3: of the last year covering the Trade Board and its
Speaker 3: effect on global supply chains. He says, in some cases,
Speaker 3: President Trump's TARF policy show signs of their intended outcome.
Speaker 7: We've seen pharmaceutical companies say that they are going to
Speaker 7: produce more drugs in the US, and so the effect
Speaker 7: is happening. It's just happening at a very slow pace
Speaker 7: and not a huge scale at this point. The big
Speaker 7: question really is how much of it is going to
Speaker 7: be these kinds of good paying factory jobs that the
Speaker 7: administration thinks they're going to create, or are these a
Speaker 7: lot of these going to be data centers and not
Speaker 7: very labor intensive facilities that don't create this renaissance of
Speaker 7: manufacturing jobs that the administration has pledged they're going to
Speaker 7: try to accomplish.
Speaker 3: Rick says Trump's vision of bringing back manufacturing jobs may
Speaker 3: never materialize in his industry. That's because toy companies like
Speaker 3: his rely heavily on manual labor, actual human hands that
Speaker 3: braid doll hair, Teddy Bears, and solder electronics. For years,
Speaker 3: the company's production has been concentrated in China and other
Speaker 3: emerging markets where labor costs are lower. Rick says most
Speaker 3: toy companies made that pivot decades ago. Same goes for
Speaker 3: the fast network of suppliers the toy industry depends on
Speaker 3: everything from plastics to electronics. The stuffing and rebuilding that
Speaker 3: infrastructure here, he argues, just wouldn't make financial sense.
Speaker 6: The jingoistic desire to have things made in the US
Speaker 6: is a sort of recurrent theme. It comes and it goes.
Speaker 6: And so for many years, at least ten, we've looked
Speaker 6: for any factory that would work with us to make
Speaker 6: anything so that we could cobble together a ten product range.
Speaker 6: We have over two thousand products, ten products that are
Speaker 6: made in the USA. So we go to a retailer
Speaker 6: and say, here, made in the USA. Can't do it.
Speaker 6: And so I firmly believe that there is no capacity
Speaker 6: to make the kinds of products that we make. We're
Speaker 6: going to stay in this business. We can't make the
Speaker 6: stuff in the US. Nobody wants to make it.
Speaker 3: What learning resources can build in the US. Is this
Speaker 3: a high tech distribution center that maximizes automation. Inside conveyor
Speaker 3: belts move boxes that are tracked by software. The system
Speaker 3: knows exactly where boxes and exactly what needs to be
Speaker 3: filled for customers. Gigantic robotic arms the size of cars
Speaker 3: swing into action, Wrapping palettes in plastic.
Speaker 6: The system is paperless, the HANT and we've been payperless
Speaker 6: since ninety nine and highly automated. I'll show you this
Speaker 6: pick module here is for ship ins of full cases.
Speaker 3: And though his warehouse doesn't make any toys, Rick says
Speaker 3: it still represents a huge investment in the US that
Speaker 3: the White House unfairly dismisses.
Speaker 8: This building's not free and stelf the Senate is not free,
Speaker 8: and like this is technology, and you know where this
Speaker 8: was made, of course in the United States. And there's
Speaker 8: probably a dozen pieces of software here that are talking
Speaker 8: to each other.
Speaker 6: And guess where that comes from.
Speaker 8: This is a high tech place.
Speaker 6: It's just not what they have in mind.
Speaker 8: But like, come on, isn't this an encouraged activity. Isn't
Speaker 8: this good? These people have jobs. They're good jobs too,
Speaker 8: or else they wouldn't work here.
Speaker 3: Rick had plans to open an even bigger distribution center,
Speaker 3: doubling his footprint and adding scores of new employees, but
Speaker 3: those ambitions have been put on ice as he's been
Speaker 3: forced to divert funds from developing new projects to paying tariffs.
Speaker 3: And Rick says the tariffs haven't just affected the company's
Speaker 3: plans to expand and innovate. They've also eroded its existing business.
Speaker 3: As he walks us through the factory, Rick says he
Speaker 3: and his team have had to make tough decisions about
Speaker 3: which products deserve space on the shelves. Some simply don't
Speaker 3: make the cut anymore.
Speaker 6: It's also sacrifice of new revenue, because as your backlist declines,
Speaker 6: you want to bring in new products to create new
Speaker 6: revenue opportunities. It's innovation, and our customers want new product.
Speaker 6: You don't go into a toy store and say, show
Speaker 6: me what's old.
Speaker 3: Rick's decision to put new investments on hold while covering
Speaker 3: tariff costs first is one that many small and mid
Speaker 3: sized firms face. Brendan says, perhaps the biggest issue for
Speaker 3: companies big and small is the unpredictability of the policy
Speaker 3: fifty percent on India, new levies on Vietnam, renegotiated tariffs
Speaker 3: on China.
Speaker 7: The officials that we have talked to would say privately,
Speaker 7: it's been chaotic. It's been it's kind of zigzagged back
Speaker 7: and forth between going full on with tariffs and scaling.
Speaker 5: Them back and creating carve.
Speaker 7: Outs and exclusions, and so the end result the administration
Speaker 7: would probably say, look, we have taken tariffs, which were
Speaker 7: essentially rarely used at the beginning of the second Trump administration,
Speaker 7: to something that is now kind of an everyday tool
Speaker 7: that the President has used, the stock market has gotten
Speaker 7: used to it, and it's just a matter of this
Speaker 7: adjustment that small companies in particular are going.
Speaker 5: To have to go through.
Speaker 3: In his shiny penny warehouse in Chicago, Rick says all
Speaker 3: of that disruption leaves him feeling like a nomad moving
Speaker 3: from one country to the next in search of a
Speaker 3: safe harbor where teriff rates won't threaten his company's survival.
Speaker 6: We go from jurisdiction to jurisdiction, and no matter what
Speaker 6: we guess, it seems like it's wrong.
Speaker 3: After the break, how the tariff shock waves have rippled
Speaker 3: out from China a Chicago warehouse and into storefronts, and
Speaker 3: how Learning Resources is fighting.
Speaker 9: Back This one.
Speaker 4: I love this one. This is by Learning Resources, and
Speaker 4: I love.
Speaker 3: Kathleen Donahue owns Labyrinth Games and Puzzles in Washington, DC.
Speaker 4: It's a speed dice rolling where you work on math skills,
Speaker 4: so you're rolling dice as fast as you can.
Speaker 3: In Dice of Fury, Kathleen celebrating fifteen years in business,
Speaker 3: but she says this year has been a roller coaster.
Speaker 9: It feels like every six months someone else hits me
Speaker 9: in the face. This year has been challenging, but also
Speaker 9: weirdly good.
Speaker 3: Weirdly good because she feels the community is rallying to
Speaker 3: support small business, but the economics are getting tougher. Brands
Speaker 3: keep raising wholesale prices, and retailers can't pass all of
Speaker 3: that onto consumers without losing sales. She says there's a
Speaker 3: limit to what families are willing to spend.
Speaker 4: I feel like people are now going twenty five to
Speaker 4: thirty dollars for a birthday present, but certainly we'd try
Speaker 4: not to carry very many games that go over that
Speaker 4: twenty five dollars.
Speaker 3: Kathleen says she's seen inflation effect just about everyone lately,
Speaker 3: but it's been especially hard on younger families. In Washington, DC, we.
Speaker 9: Had tons of people in the store playing games and stuff,
Speaker 9: but nobody was spending money, especially if they work for
Speaker 9: the federal government. When they shut down the government, you know,
Speaker 9: a lot of those people had to take loans to
Speaker 9: just live. They're certainly not going to be spending on
Speaker 9: games or puzzles like that's going to happen these days.
Speaker 3: When Kathleen looks at the toy business, she sees an
Speaker 3: industry in disarray. She says, small board game makers, often
Speaker 3: mom and pop businesses, have been hit especially hard by
Speaker 3: the chaos. She's been caught in the tariff trap herself,
Speaker 3: paying board game publishers for goods that have never arrived.
Speaker 9: They have my money. I have no games. Yes, there
Speaker 9: have been multiple things that I've already paid for that
Speaker 9: we're supposed to be here that aren't here because they
Speaker 9: can't ship them from China because they don't have enough
Speaker 9: money to pay the tariffs.
Speaker 3: The math on her own business is getting brutal, and
Speaker 3: Kathleen says she's making a lot less overall.
Speaker 9: The prices have gone up, the margins have gone down. Basically,
Speaker 9: it looks like our sales are up a little bit,
Speaker 9: but our margins are down by two to three percent
Speaker 9: across the board from this year this time to last
Speaker 9: year this time. But we've also just said we have
Speaker 9: to charge.
Speaker 3: More earlier this year. Trump made headlines when he suggested
Speaker 3: the tariffs could mean fewer toys for American kids.
Speaker 1: Maybe the children will have two dollars instead of thirty dollars,
Speaker 1: and maybe the two dolls will cost a couple of
Speaker 1: bucks more than they would normally.
Speaker 3: Bloomberg's Brendan Murray says Trump and the White House are
Speaker 3: using tariffs to safeguard an American way of life that
Speaker 3: they feel is at risk, and higher prices for consumers
Speaker 3: is a trade off.
Speaker 7: I think that's the administration's view, is that the American
Speaker 7: dream is not built around the ability to buy things
Speaker 7: as cheaply as possible. It's built around having a middle
Speaker 7: class job where you can educate your children's and have
Speaker 7: a home and live that sort of romanticized version of
Speaker 7: what Americans considered to be a prosperous lifestyle. And President
Speaker 7: Trump believes that's been lost and he's trying to regain that,
Speaker 7: and tariffs are the main tool that is using to
Speaker 7: do so.
Speaker 3: Back at Learning Resources headquarters in Illinois, Slinenberg says he
Speaker 3: also wants to preserve the American dream that began with
Speaker 3: his grandfather. His granddad started the business more than one
Speaker 3: hundred years ago, and he and his children are running it.
Speaker 3: But Rick's now facing a reality he never imagined. Chaotic
Speaker 3: pricing the hibernation of products millions of dollars to move
Speaker 3: his supply chain.
Speaker 6: And this is what happens for stops start, turn left,
Speaker 6: turn right, yo yo here yo yo. There is my
Speaker 6: life now.
Speaker 3: In this April, Learning Resources sued Trump, arguing that the
Speaker 3: president doesn't have the constitutional authority to impose these taxes
Speaker 3: without congressional approval. Rick calls it taxation without representation.
Speaker 6: I was pissed and the future of our company. You're
Speaker 6: talking about over one hundred years of a family business,
Speaker 6: which I see in the context of providing jobs to
Speaker 6: thousands of people who live in the Chicago area since
Speaker 6: nineteen sixteen and having a substantial impact on the community
Speaker 6: I live in. I was not point to passively allow
Speaker 6: this to be extinguished by politicians, and I thought this
Speaker 6: was unlawful, so I sighed, sue.
Speaker 3: Suing the President of the United States isn't cheap. The
Speaker 3: legal fees are likely to total millions of dollars, and
Speaker 3: Rick's company is responsible for paying that bill. If Learning
Speaker 3: Resources wins, it could get a refund of millions of
Speaker 3: dollars in tariffs money that could restart those canceled product lines.
Speaker 6: But if it loses I can tell you that, in
Speaker 6: my opinion, that is a horrific outcome that every American
Speaker 6: should lose sleepover. It would affect people's faith in rule
Speaker 6: of law. And if you doubt rule of law, you
Speaker 6: also doubt whether your personal freedoms will be respected, and
Speaker 6: the whole concept of the country unravels.
Speaker 3: The Global trade War has reshaped the world map, moving
Speaker 3: factories from China to Vietnam, India and other emerging countries,
Speaker 3: but the shock waves have also hit home in West Lafayette, Indiana.
Speaker 3: Inside Dylan Bushar's living room, Dylan's daughter has autism and
Speaker 3: for her, toys like number blocks aren't just playthings.
Speaker 5: It's comfortable for her.
Speaker 2: I don't know if that makes sense, but like if
Speaker 2: she's overwhelmed, if she's you know, overstimulated, which is what
Speaker 2: happens to her oftentimes, like number blocks will like calm
Speaker 2: her heart rate. Now, like she'll set in my lab.
Speaker 2: I'll hold her. I can feel her heart beating slower.
Speaker 1: You know.
Speaker 2: It's just it's something she's she knows and she's comfortable
Speaker 2: with and she's learning.
Speaker 3: Dylan was able to make his own version of number blocks,
Speaker 3: but he knows not every family has that option. For some,
Speaker 3: the choice comes down to a twenty five dollars toy
Speaker 3: or putting food on the table. And while he sidesteps
Speaker 3: expense by three D printing sum toys, Dylan says the
Speaker 3: decision to wage tariff wars weighs heavily on families like his.
Speaker 3: He can see the impact of tariffs just by looking
Speaker 3: at his plans for the holidays. Things are going to
Speaker 3: be a lot less Christmasy this year.
Speaker 2: For the girls because we spent the same amount of
Speaker 2: money as we always do.
Speaker 5: We just have less stuff.
Speaker 2: You know, it's still going to be Christmas more, He's
Speaker 2: still going to be presents to open, but it's noticeable
Speaker 2: what a dollar is going.
Speaker 5: To buy you.
Speaker 3: So it sounds like there's going to be less presence
Speaker 3: underneath the Christmas tree this year, even though you're spending
Speaker 3: just as much.
Speaker 2: Yeah, we didn't need to start a second ring around,
Speaker 2: Like you know, there's no stacking. It's just a it's
Speaker 2: a donut, so there's no there's no third dimension to it.
Speaker 3: This is the big take Asia from Bloomberg News. I'm Wanha.
Speaker 3: We followed learning recent sources from the factory floor in
Speaker 3: Vietnam and India to the Supreme Court. You can listen
Speaker 3: to the full series wherever you get your podcasts. The
Speaker 3: show is hosted by Me, David Gura, and Sarah Holder.
Speaker 3: The show is made by Aaron Edwards, David Fox, Jeff Grocott,
Speaker 3: Eleanor Harrison Dengate, Patty hirsh Rachel Lewis, Krisky, Katie mcmurranmi Um,
Speaker 3: Julia Press, Tracy Samuelson, Naomi Shaven, Alex Sugiia, Julia Weaver,
Speaker 3: Young Young and Taka Yasuzawa. To get more from the
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Speaker 3: subscribe today at Bloomberg dot Com Slash Podcast offer. Thanks
Speaker 3: for listening. We'll be back on Monday.