Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: President Donald Trump has imposed, halted, raised, and lowered tariffs
Speaker 2: on trading partners at a dizzying pace since taking office.
Speaker 2: That's left American businesses and their overseas suppliers scrambling to
Speaker 2: catch up. Some of those American companies are fighting back,
Speaker 2: taking the tariffs and the president to court. Take Learning Resources.
Speaker 2: The Illinois company makes kids toys and educational games like
Speaker 2: the cod and Go Robot Mouse. Their products are sold
Speaker 2: on Amazon and at major retailers like Target and Walmart,
Speaker 2: and made for the most part in China. Learning Resources
Speaker 2: has taken a big hit in the US China trade war.
Speaker 2: In April, the company sued the Trump administration over tariffs
Speaker 2: and won the case in a district court, but the
Speaker 2: ruling is currently on hold other hearings. Here's CEO Rick Woldenberg.
Speaker 3: First and foremost, we believe that the tariffs are illegal
Speaker 3: and they were creating really a perilous situation for our business.
Speaker 3: So we didn't feel as though we had the alternative
Speaker 3: to just wait and see what happened.
Speaker 2: For now, Trump has lowered his tariffs on Chinese goods,
Speaker 2: and both China and the US have agreed to a
Speaker 2: tariff truce that will last until August. Loomberg's Lucio lu
Speaker 2: who covers China's government and economy out of Beijing, says
Speaker 2: Chinese suppliers of American companies are still hurting.
Speaker 1: We hear these stories of exporters on the phone with
Speaker 1: their buyers, you know, on the verge of tears, talking
Speaker 1: about the people they have to let go, and then
Speaker 1: the prospect of shutting down some of these factories, in
Speaker 1: many cases decades old businesses, and then this overnight mad
Speaker 1: dash to make shipments to catch that ninety day window.
Speaker 1: So it's you know, it's been a roller coaster.
Speaker 2: This is the Big Take Asia from Bloomberg News. I'm wanh.
Speaker 2: Every week we take you inside some of the world's
Speaker 2: biggest and most powerful economies and the markets, tycoons and
Speaker 2: businesses that drive this ever shifting region. Today on the show,
Speaker 2: the difficult conversations that American companies are having with their
Speaker 2: Chinese suppliers, and how one toy maker is going to
Speaker 2: court to fight tariffs. From aircraft parts to baby strollers.
Speaker 2: American companies have been sourcing goods made in China for decades.
Speaker 2: So when President Trump announced he would impose wide ranging
Speaker 2: tariffs on Chinese imports. It put a lot of American
Speaker 2: business owners, including Chicago's Rick Woldenberg, in a difficult spot.
Speaker 3: I'm the CEO of Learning Resources and also a company
Speaker 3: called hand to Mind located in Vernon Hills, Illinois, outside Chicago.
Speaker 1: Learning to build learning ones, twos and threes, learning about
Speaker 1: science and learning with ease.
Speaker 3: Our family business dates back to nineteen sixteen. The two companies,
Speaker 3: Learning Resources and a hand to Mind specialized in educational
Speaker 3: materials for schools and educational toys for the home. We
Speaker 3: sell our products in over one hundred countries and we
Speaker 3: have over five hundred employees.
Speaker 2: Rick. When you follow the lawsuit in late April against
Speaker 2: the Trump administration over the tariffs, Trump was talking about
Speaker 2: raising the levee on Chinese imports to one hundred and
Speaker 2: forty five percent. Now that's a huge spike from the
Speaker 2: roughly twenty percent tariff that was already in place when
Speaker 2: he took office. How would a one hundred and forty
Speaker 2: five percent tariff affect your business?
Speaker 3: So at one hundred and forty five percent, we took
Speaker 3: our twenty twenty five plan and calculated how much that
Speaker 3: would cost us to implement everything that was in the
Speaker 3: plan at the beginning of the year before the Trump administration,
Speaker 3: the actual money that we paid in twenty twenty four
Speaker 3: was two point three million, and the cost for twenty
Speaker 3: twenty five under that plan was about one hundred point
Speaker 3: two million dollars. More than ninety five percent of the
Speaker 3: one hundred million came from imports from China, so it
Speaker 3: was all about China.
Speaker 2: Recently, the US and China agreed to diffuse trade tensions,
Speaker 2: with Donald Trump saying they reached a deal effectively keeping
Speaker 2: the tariffs at fifty five percent. That's thirty percent extra
Speaker 2: on top of the twenty five percent from his first term.
Speaker 2: How does that impact your businesses.
Speaker 3: It's hard to estimate, because of course who knows what
Speaker 3: the rates will be. But I estimate the number now
Speaker 3: is twenty to thirty million. And we still have to
Speaker 3: pay income taxes if we actually have any income. So
Speaker 3: it's not survivable at that number either. It's inflationary, and
Speaker 3: we're a tax collector now.
Speaker 2: So what you're saying is this is a tax on
Speaker 2: American businesses and the American consumer. But that's not how
Speaker 2: President Trump sees it. He argues that foreign countries and
Speaker 2: companies will be paying the tariffs and the US government
Speaker 2: is collecting taxes from them. What's your take on that.
Speaker 3: That's gaslighting. That's just a plain old untruth. I pay
Speaker 3: that bill, ask my CFO. I borrow it from JP Morgan,
Speaker 3: and I give it to US government and then I
Speaker 3: hope I sell enough products to get it back. The
Speaker 3: Chinese government is not paying it. I pay it when
Speaker 3: you hit us and hundreds of thousands of other businesses
Speaker 3: collectively with a six hundred billion dollar tax bill. We
Speaker 3: fall below normal profit, so we can cut some costs,
Speaker 3: but we still have to pass on some of that
Speaker 3: in order to remain financible. So Chinese has nothing to
Speaker 3: do with this, and we don't do business with the
Speaker 3: Chinese government. And that's just plan in simple fiction.
Speaker 2: I can see how it must be to do business
Speaker 2: when you have no idea what might happen in the
Speaker 2: future with these tariffs, but with a trade war unlikely
Speaker 2: to end anytime soon, what are you doing to make
Speaker 2: the numbers work?
Speaker 3: We cut our spending to shreds. We have obtained modest
Speaker 3: concessions from Chinese vendors, principally who've generously tried to help
Speaker 3: us out. We've raised prices. We've tried to make the
Speaker 3: price increase as modest as we could. We're a mission
Speaker 3: driven business. We look at raising prices as a problem
Speaker 3: because we know that at some point some people drop off,
Speaker 3: and then that child won't have that opportunity. So we
Speaker 3: have a responsibility to manage our business to do the
Speaker 3: best we can to keep the prices down.
Speaker 2: You've cut costs, you raise prices. You've also moved some
Speaker 2: of your production outside of China. How much of your
Speaker 2: toys are made in China? And how do you think
Speaker 2: about manufacturing there now?
Speaker 3: That probably we were seventy five or eighty percent at peak,
Speaker 3: there was no reason to calculate it. In the past.
Speaker 3: China was our preferred number one manufacturing market, where we
Speaker 3: had longest relationships and we had the widest diversity of capabilities.
Speaker 3: They were usually the most competitive market, most efficient market,
Speaker 3: and so they generally earned a lion's share of what
Speaker 3: we did. After Trump one point, Oh, we believed that
Speaker 3: the clock was ticking, and our fear was not mister she.
Speaker 3: I don't have any opinions about mister she. Our fear
Speaker 3: was American politicians, and so we began a process two
Speaker 3: or three years ago of really building up a supply
Speaker 3: chain in Vietnam and India. So we had about sixteen
Speaker 3: percent of our product out of Vietnam and India. Heading
Speaker 3: into the year, we were about sixty percent China, which
Speaker 3: is low for our industry, but we now know not
Speaker 3: low enough. We've told our factories they need to move,
Speaker 3: and we've told them that it's an urgent matter, and
Speaker 3: we told them we have to move. There are some
Speaker 3: products we will continue to make in China, so some
Speaker 3: educational products can be brought in at an advantageous rate,
Speaker 3: and so we'll leave them there. But on things where
Speaker 3: we really can't move it out of China, we're faced
Speaker 3: with a very difficult choice. And some products may disappear
Speaker 3: from the market for a period of time, but we
Speaker 3: won't produce the product at a price we don't think
Speaker 3: we can sell it, and so we can't buy certain
Speaker 3: products above a certain cost, and so we just probably
Speaker 3: will drop them or hibernate them until we can figure
Speaker 3: out what to do.
Speaker 2: What is the process of moving out of China to
Speaker 2: places like Vietnam and India been, like.
Speaker 3: It's really a building the plan while you fly it
Speaker 3: kind of situation we're seeing, not surprisingly because it's a
Speaker 3: synchronize catastrophe for everybody making everything in China, So everybody
Speaker 3: making everything is moving everything someplace else, so you have
Speaker 3: a big synchronized supply and demand imbalance. We've picked up
Speaker 3: new factories, but the thing about finding a manufacturing partner
Speaker 3: is that you really have to develop a manufacturing partner.
Speaker 3: You can do with other places, but it's hard and
Speaker 3: very often there's something missing, and it's also generally more
Speaker 3: expensive because the volume isn't there.
Speaker 2: So Trump says he's raising tariffs so that companies would
Speaker 2: be incentivized to bring back manufacturing to the US. How
Speaker 2: realistic is that?
Speaker 3: The jingoistic desire to have things made in the US
Speaker 3: is a sort of recurrent theme. It comes and it goes.
Speaker 3: And so for many years, at least ten, we've looked
Speaker 3: for any factory that would work with us to make anything.
Speaker 3: We have over two thousand products, ten products that are
Speaker 3: made in the USA. So we go to a retailer
Speaker 3: and say, here, made in the USA, can't do it.
Speaker 3: And so I firmly believe that there is no capacity
Speaker 3: to make the kinds of products that we make. We're
Speaker 3: going to stay in this business. We can't make the
Speaker 3: stuff in the US. Nobody wants to make it. The
Speaker 3: US market is not set up for this. This is
Speaker 3: a high service, high intellectual property marketplace. US people need
Speaker 3: to earn more money than you can pay to make toys,
Speaker 3: and there just aren't enough people who've invested in this
Speaker 3: very low tech business to compete with Asian countries who
Speaker 3: can do this at a much lower cost.
Speaker 2: After the break, how Chinese manufacturers are dealing with Trump's
Speaker 2: tariffs on the ground. To blunt the pain and uncertainty
Speaker 2: of tariffs, American businesses that have long relied on Chinese
Speaker 2: made goods are now looking to other countries to diversify
Speaker 2: their supply chains. That's put Chinese manufactures under immense pressure.
Speaker 2: We spoke to Bloomberg's Luciulu to get a sense of
Speaker 2: the scrambling on the ground.
Speaker 1: We finally had some numbers that really showed us how
Speaker 1: much damage was done. So Chinese exports the US fell
Speaker 1: about thirty five percent almost in May compared to the
Speaker 1: same period last year. The most sense the pandemic when
Speaker 1: the economy almost basically had to shut down, so these
Speaker 1: aren't small numbers, and of course that sharp decline of
Speaker 1: exports to the US more than offset the rise in
Speaker 1: exports of Chinese goods to other countries that was about
Speaker 1: eleven percent.
Speaker 2: So it really shows sort of the heft of the US.
Speaker 1: Economy and how much Chinese exporters have suffered because of
Speaker 1: the tariffs.
Speaker 2: Now, despite that slow down of exports falling the motions
Speaker 2: twenty twenty, we were also seeing record shipments from China.
Speaker 2: How is that also true?
Speaker 1: Yeah, so I think there's a lot of things going on.
Speaker 1: There's of course front loading orders, there is some rerouting
Speaker 1: going on, and also importantly, we have seen that export
Speaker 1: volumes have grown much faster than values. So that indicates
Speaker 1: that although the volume is up, the prices are falling
Speaker 1: and that makes Chinese goods more competitive. But then that
Speaker 1: also has led to sort of these accusations of dumping.
Speaker 1: It obviously undercuts competitors in other countries, and that's increased
Speaker 1: tensions with trading partners, not just the US. Of course,
Speaker 1: the EU has also been very vocal, So those factors
Speaker 1: are creating additional trade tensions.
Speaker 2: Lucille, I'm sure you talked to many Chinese factory owners
Speaker 2: who make goods for American companies like learning resources. What
Speaker 2: have these factories been doing in response? What's their contingency plan?
Speaker 1: Yeah, so, I mean some of our colleagues spoke to
Speaker 1: one of the suppliers to learning resources, and this company
Speaker 1: has settled on the China plus one strategy. I think
Speaker 1: they're at where a lot of Chinese factories are at,
Speaker 1: which is, in the short term, we want to crank
Speaker 1: things out, we want to ship as much as possible.
Speaker 1: But in the long term, decoupling is going to happen,
Speaker 1: and we need to have a long term strategy. And
Speaker 1: having a factory elsewhere is sort of one of the
Speaker 1: most popular strategies that these factories have pursued. So this
Speaker 1: particular factory, they're going to Vietnam. They're going to be
Speaker 1: an operation next month. But everyone can see that that's
Speaker 1: going to be a long process. No one is going
Speaker 1: to be able to replace the US as the customer.
Speaker 1: In the short term. I think people are just settling
Speaker 1: in for just tougher times.
Speaker 2: What are they telling you about the challenges they're facing.
Speaker 1: There's been a lot of surprises from many of them.
Speaker 1: Skilled les laborers come up as one of the top concerns.
Speaker 1: Many of these factory owners say it's very hard to
Speaker 1: find factory workers as trained as the Chinese workers who
Speaker 1: have been doing this for many, many years, and so
Speaker 1: they have had challenges finding skilled workers, getting them to
Speaker 1: work as long hours as they can in China, and
Speaker 1: then also guaranteeing the quality that they have been able
Speaker 1: to for their buyers. So that's been a challenge. Of course,
Speaker 1: the personal cost of moving away from family is a
Speaker 1: major one, and each of these different countries also have
Speaker 1: different rules which they're still navigating.
Speaker 2: And Lucille, what does all of this mean for consumers
Speaker 2: in the States at the moment?
Speaker 1: I think it's higher costs, and some of them may
Speaker 1: already be seeing that happen. We know that meeting that
Speaker 1: Trump had with major retailers including Walmart, Home Depot, Target,
Speaker 1: and that idea and the fears of empty shelves potentially
Speaker 1: being a driving factor in some of the trained negotiations
Speaker 1: because it has such a big impact for US consumers,
Speaker 1: especially as in years holiday seasons and as we get
Speaker 1: closer to the later half of the year Christmas. So
Speaker 1: that's a big concern for the US. In addition to
Speaker 1: the Chinese exporters. No one is left unscathed. If you
Speaker 1: are shipping to the US, you are having these conversations
Speaker 1: and that spent a lot of hard decisions for these exporters.
Speaker 2: Thanks Lucillo for joining us.
Speaker 1: Thank you, thank you so much.
Speaker 2: This is The Big Take Asia from Bloomberg News. I'm wanha.
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