Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Do you want to
Speaker 1: look at it number seven or do you want to
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Speaker 2: This summer, Dylan Brochar's four and seven year old daughters
Speaker 2: got hooked on a British cartoon that teaches kids about
Speaker 2: counting and math.
Speaker 3: One bed, Hello bird, one tree, Hello tree.
Speaker 2: The stars of Number Blocks are bright, playful characters built
Speaker 2: from stackable plastic blocks, with faces and hands that bring
Speaker 2: them to life. They've captured the imagination of young kids everywhere,
Speaker 2: including Dylan's youngest daughter.
Speaker 1: She'll just sit and watch it and she'll sing the
Speaker 1: song because one and one.
Speaker 4: Mate two one is that's three.
Speaker 5: It's calling for her.
Speaker 2: The characters from Number Blocks are licensed by an American
Speaker 2: toy maker, Learning Resources, which produces the line of toys,
Speaker 2: and naturally, Dylan's daughter wanted a set of her own.
Speaker 1: Like any other consumer, would you know. I got on
Speaker 1: Google and found where to purchase them, and I think
Speaker 1: the cheapest set we could find it was just like
Speaker 1: a one, two and three blocks, so three little tiny toys.
Speaker 1: It was you know, twenty dollars and the smaller sets
Speaker 1: were twenty five thirty dollars each.
Speaker 2: The price gave Dylan pause. He and his family live
Speaker 2: in what he calls the cornfields of Indiana. As a
Speaker 2: seventh grade science teacher, Dylan keeps a careful watch on
Speaker 2: the family spending. In June, Learning Resources raised prices on
Speaker 2: its toys by an average of six percent, which bumped
Speaker 2: most number blocks up by a few dollars. That may
Speaker 2: not seem like much, but for Dylan, who's seen costs
Speaker 2: of everything from groceries to toys climb this year, the
Speaker 2: increase was too steep.
Speaker 5: You're getting less stuff for the same amount of money.
Speaker 1: It's not in the budget to buy multiple sets of
Speaker 1: prices of toys that are, you know, continuing to go
Speaker 1: up the same way everything is.
Speaker 2: The girls did get their number blocks, but it wasn't
Speaker 2: from Amazon or the stores.
Speaker 5: Are you coming helping us? Send it to the printer?
Speaker 2: Baby Dylan sat down at his computer, designed the characters himself,
Speaker 2: and printed them out on his home three D printer
Speaker 2: for a fraction of the price the amount.
Speaker 1: Of plastic that I use on It's less than fifty
Speaker 1: cents for a little doll so it's it's crazy.
Speaker 2: For Dylan. It was a thrifty hack to save money
Speaker 2: for learning resources. It's a troubling tipping point when prices
Speaker 2: climb too high. Some consumers don't just cut back, they
Speaker 2: 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 2: 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.
Speaker 2: I don't need, Rick says. Learning Resources price increase was
Speaker 2: driven by President Donald Trump's tariff hikes.
Speaker 4: Here is the deal that I will be offering to
Speaker 4: every major company and manufacture on Earth. I will give
Speaker 4: you the lowest taxes.
Speaker 2: Since the start of his second term, President Trump has
Speaker 2: imposed sweeping tariffs, most notably on China, where most toys
Speaker 2: are made. The policy was billed as a way to
Speaker 2: boost US tax revenue and push brands to bring manufacturing
Speaker 2: back home, and Trump insists that foreign countries and companies
Speaker 2: would be the ones footing the bill. Here he is
Speaker 2: on c SPAN during his campaign.
Speaker 4: A tariff is a tax or to foreign country. That's
Speaker 4: the way it is whether you like it, and that
Speaker 4: a lot of people like to soil, or.
Speaker 6: It's a tax or US.
Speaker 4: No, no, no, it's a tax on a foreign country.
Speaker 2: That's not the way things have turned out for Learning Resources.
Speaker 2: About half of its products are still made in China,
Speaker 2: where tariffs hit one hundred and forty five percent in April,
Speaker 2: though that's now been reduced to thirty one percent. The
Speaker 2: company has accelerated its shift from China to neighboring Vietnam,
Speaker 2: where exports to the US face a twenty percent levy.
Speaker 2: But tariffs aren't paid by the foreign factories that make
Speaker 2: the toys. They're paid by the importer when goods are
Speaker 2: 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 2: In twenty twenty four, the company paid about two million
Speaker 2: dollars in tariffs. This year that's jumped to about fourteen
Speaker 2: million dollars. Like many American companies manufacturing overseas, Learning Resources
Speaker 2: front loaded inventory before higher levees took effect. That's helped
Speaker 2: it to avoid passing the full cost onto consumers. But
Speaker 2: that wasn't the only battle it took on. In April,
Speaker 2: the company took its fight to court, arguing the president
Speaker 2: lacked authority to impose tariffs. The case now sits before
Speaker 2: the Supreme Court. Rick is hopeful the court will rule
Speaker 2: the tariffs illegal, but if it upholds administration's levees, he says,
Speaker 2: 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 2: This is the big take Asia from Bloomberg News. I'm wanha.
Speaker 2: Over the past year, we followed an American toy company
Speaker 2: as it fled China and scrambled to rebuild its supply
Speaker 2: chains in Asia. Today, in our final chapter, we see
Speaker 2: what the tariff chaos looks like when it lands on
Speaker 2: American shores, when the bill finally comes due, and how
Speaker 2: 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: they'd be about a half a mile.
Speaker 2: Rick Woldenberg is taking us on a tour of what
Speaker 2: he calls his Shiny Penny in Burning Hills outside of Chicago.
Speaker 2: It's a warehouse the company built four years ago and
Speaker 2: it holds nearly all of learning resources two thousand or
Speaker 2: so products. When you order one of the company's toys online,
Speaker 2: the Noodle Puzzles or Botley, the coating Robot, chances are
Speaker 2: it will come through here. The space stretches out like
Speaker 2: a canyon, and Bayer belt crisscross the floor, while shelves
Speaker 2: stacked more than thirty feet high are loaded with pallets.
Speaker 2: On the floor, a worker moves through the aisles, pulling
Speaker 2: individual toys from the shelves and packing them into cardboard
Speaker 2: boxes that make their way through the factory.
Speaker 6: So you see she's wearing a headset so that's voice
Speaker 6: to pick. And on her arm she has a little display,
Speaker 6: and on her finger she has a scanner. And then
Speaker 6: she just scanned the products, scans it out of its
Speaker 6: ol pation, scans it into the box.
Speaker 2: As Rick shows off the plant's technology, he says he's
Speaker 2: frustrated by the Trump administration's narrative that companies importing goods
Speaker 2: into the US are somehow bad actors that don't invest
Speaker 2: at home, and that if you tax those companies heavily enough,
Speaker 2: they'll be forced to build factories in America.
Speaker 4: Companies know that if they build in America, there are
Speaker 4: no tariffs, and that's why they're coming home to the
Speaker 4: 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.
Speaker 5: If they can.
Speaker 2: Brendon Murray is Bloomberg's Global Trade editor. He spent much
Speaker 2: of the last year covering the Trade Board and its
Speaker 2: effect on global supply chains. He says, in some cases,
Speaker 2: 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 2: Rick says Trump's vision of bringing back manufacturing jobs may
Speaker 2: never materialize in his industry. That's because toy companies like
Speaker 2: his rely heavily on manual labor, actual human hands that
Speaker 2: braid doll hair, Teddy Bears, and solder electronics. For years,
Speaker 2: the company's production has been concentrated in China and other
Speaker 2: emerging markets where labor costs are lower. Rick says most
Speaker 2: toy companies made that pivot decades ago. Same goes for
Speaker 2: the fast network of suppliers the toy industry depends on
Speaker 2: everything from plastics to electronics. The stuffing and rebuilding that
Speaker 2: 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 2: What learning resources can build in the US? Is this
Speaker 2: a high tech distribution center that maximizes automation. Inside conveyor
Speaker 2: belts move boxes that are tracked by software. The system
Speaker 2: knows exactly where boxes and exactly what needs to be
Speaker 2: filled for customers. Gigantic robotic arms the size of cars
Speaker 2: swing into action, wrapping palettes in plastic.
Speaker 8: The system is paperless Mahant, and we've been payperless since
Speaker 8: ninety nine and highly automated. I'll show you this pick
Speaker 8: module here is for ship ins of full cases.
Speaker 2: And though his warehouse doesn't make any toys, Rick says
Speaker 2: it still represents a huge investment in the US that
Speaker 2: the White House unfairly dismisses.
Speaker 9: This building's not free and self that Senate is not free,
Speaker 9: and like this is technology, and you know where this
Speaker 9: was made, of course, in the United States. And there's
Speaker 9: probably a dozen pieces of software here that are talking.
Speaker 6: To each other. And guess where that comes from.
Speaker 9: This is a high tech place. It's just not what
Speaker 9: they have in mind. But like, come on, isn't this
Speaker 9: an encouraged activity. Isn't this good? These people have jobs.
Speaker 9: They're good jobs too, or else they wouldn't work here.
Speaker 2: Rick had plans to open an even bigger distribution center,
Speaker 2: doubling his footprint and adding scores of new employees, but
Speaker 2: those ambitions have been put on ice as he's been
Speaker 2: forced to divert funds from developing new projects to paying tariffs.
Speaker 2: And Rick says the tariffs haven't just affected the company's
Speaker 2: plans to expand and innovate, they've also eroded its existing business.
Speaker 2: As he walks us through the factory, Rick says he
Speaker 2: and his team have had to make tough decisions about
Speaker 2: which products deserve space on the shelves. Some simply don't
Speaker 2: 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 2: Rick's decision to put new investments on hold while covering
Speaker 2: tariff costs first is one that many small and mid
Speaker 2: sized firms face. Brendan says, perhaps the biggest issue for
Speaker 2: companies big and small is the unpredictability of the policy.
Speaker 2: Fifty percent on India, new levies on Vietnam, renegotiated tariffs
Speaker 2: 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 7: them back and creating carve outs and exclusions, and so
Speaker 7: the end result the administration would probably say, look, we
Speaker 7: have taken tariffs, which were essentially rarely used at the
Speaker 7: beginning of the second Trump administration, to something that is
Speaker 7: now kind of an everyday tool that the President has used,
Speaker 7: the stock market has gotten used to it, and it's
Speaker 7: just a matter of this adjustment that small companies in
Speaker 7: particular are going.
Speaker 5: To have to go through.
Speaker 2: In his shiny Penny warehouse in Chicago, Rick says all
Speaker 2: of that disruption leaves him feeling like a nomad moving
Speaker 2: from one country to the next in search of a
Speaker 2: 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 2: After the break, how the tariff shock waves have rippled
Speaker 2: out from China a Chicago warehouse and into storefronts, and
Speaker 2: how Learning Resources is fighting back.
Speaker 3: This one. I love this one. This is by Learning Resources,
Speaker 3: and I love this.
Speaker 2: Kathleen Donahue owns Labyrinth Games and Puzzles in Washington, DC.
Speaker 3: It's a speed dice rolling where you work on math skills,
Speaker 3: so you're rolling dice as fast as you can.
Speaker 2: In Dice of Fury, Kathleen celebrating fifteen years in business,
Speaker 2: but she says this year has been a roller coaster.
Speaker 3: It feels like every six months someone else hits me
Speaker 3: in the face. This year has been challenging, but also
Speaker 3: weirdly good.
Speaker 2: Weirdly good because she feels the community is rallying to
Speaker 2: support small business, but the economics are getting tougher. Brands
Speaker 2: keep raising wholesale prices and retailers can't pass all of
Speaker 2: that onto consumers without losing sales. She says there's a
Speaker 2: limit to what families are willing to spend.
Speaker 3: I feel like people are now going twenty five to
Speaker 3: thirty dollars for a birthday present, but certainly we'd try
Speaker 3: not to carry very many games that go over that
Speaker 3: twenty five dollars.
Speaker 2: Kathleen says she's seen inflation effect just about everyone lately,
Speaker 2: but it's been especially hard on younger families. In Washington, DC, we.
Speaker 3: Had tons of people in the store playing games and stuff,
Speaker 3: but nobody was spending money, especially if they work for
Speaker 3: the federal government. When they shut down the government, you know,
Speaker 3: a lot of those people had to take loans to
Speaker 3: just live. They're certainly not going to be spending on
Speaker 3: games or puzzles like that's going to happen these days.
Speaker 2: When Kathleen looks at the toy business, she sees an
Speaker 2: industry in disarray. She says, small board game makers, often
Speaker 2: mom and pop businesses, have been hit especially hard by
Speaker 2: the chaos. She's been caught in the tariff trap herself,
Speaker 2: paying board game publishers for goods that have never arrived.
Speaker 3: They have my money, I have no games. Yes, there
Speaker 3: have been multiple things that I've already paid for that
Speaker 3: we're supposed to be here that aren't here because they
Speaker 3: can't ship them from China because they don't have enough
Speaker 3: money to pay the tariffs.
Speaker 2: The math on her own business is getting brutal, and
Speaker 2: Kathleen says she's making a lot less overall.
Speaker 3: The prices have gone up, the margins have gone down. Basically,
Speaker 3: it looks like our sales are up a little bit,
Speaker 3: but our margins are down by two to three percent
Speaker 3: across the board from this year this time to last
Speaker 3: year this time. But we've also just said we have
Speaker 3: to charge.
Speaker 2: More Earlier this year, Trump made headlines when he suggested
Speaker 2: the tariffs could mean fewer toys for American kids.
Speaker 4: Maybe the children will have two dollars instead of thirty dollars,
Speaker 4: and maybe the two dolls will cost a couple of
Speaker 4: bucks more than they would normally.
Speaker 2: Bloomberg's Brendan Murray says Trump and the White House are
Speaker 2: using tariffs to safeguard an American way of life that
Speaker 2: they feel is at risk, and higher prices for consumers
Speaker 2: 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 then 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 2: Back at Learning Resources headquarters in Illinois, Ldenberg says he
Speaker 2: also wants to preserve the American dream that began with
Speaker 2: his grandfather. His granddad started the business more than one
Speaker 2: hundred years ago, and he and his children are running it.
Speaker 2: But Rick's now facing a reality he never imagined, chaotic pricing.
Speaker 2: The hibernation of products millions of dollars to move his
Speaker 2: 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 2: In this April, Learning Resources sued Trump, arguing that the
Speaker 2: president doesn't have the constitutional authority to impose these taxes
Speaker 2: without congressional approval. Rick calls it taxation without representation.
Speaker 6: I was kissed 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.
Speaker 2: Sue suing the President of the United States isn't cheap.
Speaker 2: The legal fees are likely to total millions of dollars,
Speaker 2: and Rick's company is responsible for paying that bill. If
Speaker 2: Learning Resources wins, it could get a refund of millions
Speaker 2: of dollars in tariffs, money that could restart those canceled
Speaker 2: 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 2: The Global trade War has reshaped the world map, moving
Speaker 2: factories from China to Vietnam, India and other emerging countries,
Speaker 2: but the shock waves have also hit home in West Lafayette, Indiana.
Speaker 2: Inside Dylan Bushar's living room, Dylan's daughter has autism and
Speaker 2: for her, toys like number blocks aren't just playthings.
Speaker 5: It's comfortable for her.
Speaker 1: I don't know if that makes sense, but like if
Speaker 1: she's overwhelmed, if she's you know, overstimulated, which is what
Speaker 1: happens to her oftentimes, like number blocks will like calm
Speaker 1: her heart rate. Now, like she'll set in my laugh,
Speaker 1: I'll hold her. I can feel her heart beating slower.
Speaker 4: You know.
Speaker 1: It's just it's something she's she knows and she's comfortable
Speaker 1: with and she's learning.
Speaker 2: Dylan was able to make his own version of number Blocks,
Speaker 2: but he knows not every family has that option. For some,
Speaker 2: the choice comes down to a twenty five dollars toy
Speaker 2: or putting food on the table, and while he sidesteps
Speaker 2: expense by three D printing sem toys, Dylan says the
Speaker 2: decision to wage tariff wars weighs heavily on families like his.
Speaker 2: He can see the impact of tariffs just by looking
Speaker 2: at his plans for the holidays. Things are going to
Speaker 2: be a lot less Christmasy this year.
Speaker 1: For the girls because we spent the same amount of
Speaker 1: money as we always do.
Speaker 5: We just have less stuff.
Speaker 1: You know, it's still going to be Christmas more, He's
Speaker 1: still going to be presents to open, but it's noticeable
Speaker 1: what a dollar is going.
Speaker 5: To buy you.
Speaker 2: So it sounds like there's going to be less presence
Speaker 2: underneath the Christmas tree this year, even though you're spending
Speaker 2: just as much.
Speaker 1: Yeah, we didn't need to start a second ring around,
Speaker 1: Like you know, there's no stacking. It's just a it's
Speaker 1: a donut, so there's no there's no third dimension to it.
Speaker 2: This is the big take Asia from Bloomberg News. I'm Wanha.
Speaker 2: We followed learning resources from the factory floor. You're in
Speaker 2: Vietnam and India to the Supreme Court. You can listen
Speaker 2: to the full series wherever you get your podcasts. If
Speaker 2: you like the episode, be sure to subscribe at Bloomberg
Speaker 2: dot com slash podcast offer, leave a review, and even better,
Speaker 2: tell a friend it really makes a difference. Thanks for listening,
Speaker 2: See you next time.