WEBVTT - This American Toymaker Is Suing Trump Over Destructive Tariffs 0:00:03.080 --> 0:00:07.400 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.119 --> 0:00:14.080 President Donald Trump has imposed, halted, raised, and lowered tariffs 0:00:14.080 --> 0:00:17.960 on trading partners at a dizzying pace since taking office. 0:00:18.440 --> 0:00:23.639 That's left American businesses and their overseas suppliers scrambling to 0:00:23.720 --> 0:00:27.520 catch up. Some of those American companies are fighting back, 0:00:27.720 --> 0:00:32.480 taking the tariffs and the president to court. Take Learning Resources. 0:00:32.760 --> 0:00:36.360 The Illinois company makes kids toys and educational games like 0:00:36.400 --> 0:00:39.800 the cod and Go Robot Mouse. Their products are sold 0:00:39.840 --> 0:00:43.320 on Amazon and at major retailers like Target and Walmart, 0:00:43.520 --> 0:00:47.839 and made for the most part in China. Learning Resources 0:00:47.920 --> 0:00:50.720 has taken a big hit in the US China trade war. 0:00:51.440 --> 0:00:54.960 In April, the company sued the Trump administration over tariffs 0:00:55.240 --> 0:00:58.080 and won the case in a district court, but the 0:00:58.160 --> 0:01:03.360 ruling is currently on hold other hearings. Here's CEO Rick Woldenberg. 0:01:04.080 --> 0:01:06.840 First and foremost, we believe that the tariffs are illegal 0:01:07.640 --> 0:01:11.840 and they were creating really a perilous situation for our business. 0:01:12.560 --> 0:01:15.440 So we didn't feel as though we had the alternative 0:01:15.600 --> 0:01:17.440 to just wait and see what happened. 0:01:18.319 --> 0:01:21.360 For now, Trump has lowered his tariffs on Chinese goods, 0:01:21.800 --> 0:01:24.480 and both China and the US have agreed to a 0:01:24.560 --> 0:01:28.600 tariff truce that will last until August. Loomberg's Lucio lu 0:01:28.760 --> 0:01:32.280 who covers China's government and economy out of Beijing, says 0:01:32.360 --> 0:01:36.000 Chinese suppliers of American companies are still hurting. 0:01:36.640 --> 0:01:39.399 We hear these stories of exporters on the phone with 0:01:39.440 --> 0:01:42.119 their buyers, you know, on the verge of tears, talking 0:01:42.120 --> 0:01:44.399 about the people they have to let go, and then 0:01:44.480 --> 0:01:47.840 the prospect of shutting down some of these factories, in 0:01:47.840 --> 0:01:52.680 many cases decades old businesses, and then this overnight mad 0:01:52.760 --> 0:01:56.200 dash to make shipments to catch that ninety day window. 0:01:56.880 --> 0:01:58.600 So it's you know, it's been a roller coaster. 0:02:05.280 --> 0:02:09.120 This is the Big Take Asia from Bloomberg News. I'm wanh. 0:02:09.560 --> 0:02:12.080 Every week we take you inside some of the world's 0:02:12.120 --> 0:02:16.120 biggest and most powerful economies and the markets, tycoons and 0:02:16.280 --> 0:02:20.560 businesses that drive this ever shifting region. Today on the show, 0:02:20.720 --> 0:02:24.639 the difficult conversations that American companies are having with their 0:02:24.760 --> 0:02:28.200 Chinese suppliers, and how one toy maker is going to 0:02:28.320 --> 0:02:38.880 court to fight tariffs. From aircraft parts to baby strollers. 0:02:39.000 --> 0:02:42.840 American companies have been sourcing goods made in China for decades. 0:02:43.240 --> 0:02:46.480 So when President Trump announced he would impose wide ranging 0:02:46.520 --> 0:02:49.600 tariffs on Chinese imports. It put a lot of American 0:02:49.639 --> 0:02:54.520 business owners, including Chicago's Rick Woldenberg, in a difficult spot. 0:02:55.000 --> 0:02:58.080 I'm the CEO of Learning Resources and also a company 0:02:58.120 --> 0:03:03.120 called hand to Mind located in Vernon Hills, Illinois, outside Chicago. 0:03:03.560 --> 0:03:07.280 Learning to build learning ones, twos and threes, learning about 0:03:07.320 --> 0:03:09.080 science and learning with ease. 0:03:09.680 --> 0:03:14.000 Our family business dates back to nineteen sixteen. The two companies, 0:03:14.440 --> 0:03:17.519 Learning Resources and a hand to Mind specialized in educational 0:03:17.600 --> 0:03:22.120 materials for schools and educational toys for the home. We 0:03:22.200 --> 0:03:24.960 sell our products in over one hundred countries and we 0:03:25.040 --> 0:03:27.320 have over five hundred employees. 0:03:29.960 --> 0:03:32.639 Rick. When you follow the lawsuit in late April against 0:03:32.639 --> 0:03:36.120 the Trump administration over the tariffs, Trump was talking about 0:03:36.200 --> 0:03:39.160 raising the levee on Chinese imports to one hundred and 0:03:39.160 --> 0:03:42.520 forty five percent. Now that's a huge spike from the 0:03:42.600 --> 0:03:46.000 roughly twenty percent tariff that was already in place when 0:03:46.040 --> 0:03:49.200 he took office. How would a one hundred and forty 0:03:49.200 --> 0:03:51.960 five percent tariff affect your business? 0:03:52.400 --> 0:03:54.840 So at one hundred and forty five percent, we took 0:03:54.920 --> 0:03:59.000 our twenty twenty five plan and calculated how much that 0:03:59.040 --> 0:04:02.280 would cost us to implement everything that was in the 0:04:02.320 --> 0:04:04.760 plan at the beginning of the year before the Trump administration, 0:04:05.640 --> 0:04:08.400 the actual money that we paid in twenty twenty four 0:04:09.200 --> 0:04:12.520 was two point three million, and the cost for twenty 0:04:12.560 --> 0:04:16.320 twenty five under that plan was about one hundred point 0:04:16.480 --> 0:04:19.720 two million dollars. More than ninety five percent of the 0:04:19.720 --> 0:04:23.400 one hundred million came from imports from China, so it 0:04:23.440 --> 0:04:24.400 was all about China. 0:04:25.279 --> 0:04:29.120 Recently, the US and China agreed to diffuse trade tensions, 0:04:29.240 --> 0:04:32.839 with Donald Trump saying they reached a deal effectively keeping 0:04:32.880 --> 0:04:36.360 the tariffs at fifty five percent. That's thirty percent extra 0:04:36.600 --> 0:04:39.599 on top of the twenty five percent from his first term. 0:04:40.080 --> 0:04:41.680 How does that impact your businesses. 0:04:42.440 --> 0:04:45.279 It's hard to estimate, because of course who knows what 0:04:45.400 --> 0:04:48.520 the rates will be. But I estimate the number now 0:04:48.640 --> 0:04:51.440 is twenty to thirty million. And we still have to 0:04:51.440 --> 0:04:54.120 pay income taxes if we actually have any income. So 0:04:54.760 --> 0:04:58.640 it's not survivable at that number either. It's inflationary, and 0:04:58.760 --> 0:04:59.960 we're a tax collector now. 0:05:00.600 --> 0:05:03.039 So what you're saying is this is a tax on 0:05:03.120 --> 0:05:07.000 American businesses and the American consumer. But that's not how 0:05:07.000 --> 0:05:10.599 President Trump sees it. He argues that foreign countries and 0:05:10.680 --> 0:05:14.120 companies will be paying the tariffs and the US government 0:05:14.360 --> 0:05:18.600 is collecting taxes from them. What's your take on that. 0:05:18.600 --> 0:05:23.360 That's gaslighting. That's just a plain old untruth. I pay 0:05:23.400 --> 0:05:27.560 that bill, ask my CFO. I borrow it from JP Morgan, 0:05:27.680 --> 0:05:29.960 and I give it to US government and then I 0:05:30.040 --> 0:05:32.880 hope I sell enough products to get it back. The 0:05:32.960 --> 0:05:36.320 Chinese government is not paying it. I pay it when 0:05:36.320 --> 0:05:40.520 you hit us and hundreds of thousands of other businesses 0:05:40.560 --> 0:05:43.839 collectively with a six hundred billion dollar tax bill. We 0:05:43.920 --> 0:05:47.520 fall below normal profit, so we can cut some costs, 0:05:47.520 --> 0:05:49.280 but we still have to pass on some of that 0:05:49.320 --> 0:05:53.200 in order to remain financible. So Chinese has nothing to 0:05:53.240 --> 0:05:55.760 do with this, and we don't do business with the 0:05:55.839 --> 0:05:58.880 Chinese government. And that's just plan in simple fiction. 0:05:59.320 --> 0:06:01.359 I can see how it must be to do business 0:06:01.520 --> 0:06:03.800 when you have no idea what might happen in the 0:06:03.839 --> 0:06:07.400 future with these tariffs, but with a trade war unlikely 0:06:07.520 --> 0:06:10.760 to end anytime soon, what are you doing to make 0:06:10.800 --> 0:06:11.760 the numbers work? 0:06:12.480 --> 0:06:16.920 We cut our spending to shreds. We have obtained modest 0:06:17.160 --> 0:06:22.200 concessions from Chinese vendors, principally who've generously tried to help 0:06:22.279 --> 0:06:26.159 us out. We've raised prices. We've tried to make the 0:06:26.200 --> 0:06:29.640 price increase as modest as we could. We're a mission 0:06:29.760 --> 0:06:34.320 driven business. We look at raising prices as a problem 0:06:34.480 --> 0:06:38.039 because we know that at some point some people drop off, 0:06:38.080 --> 0:06:41.360 and then that child won't have that opportunity. So we 0:06:41.400 --> 0:06:44.560 have a responsibility to manage our business to do the 0:06:44.600 --> 0:06:46.440 best we can to keep the prices down. 0:06:48.279 --> 0:06:51.680 You've cut costs, you raise prices. You've also moved some 0:06:51.760 --> 0:06:54.800 of your production outside of China. How much of your 0:06:54.839 --> 0:06:57.240 toys are made in China? And how do you think 0:06:57.279 --> 0:06:58.919 about manufacturing there now? 0:07:00.160 --> 0:07:04.080 That probably we were seventy five or eighty percent at peak, 0:07:04.520 --> 0:07:06.880 there was no reason to calculate it. In the past. 0:07:07.640 --> 0:07:11.480 China was our preferred number one manufacturing market, where we 0:07:11.480 --> 0:07:16.640 had longest relationships and we had the widest diversity of capabilities. 0:07:17.320 --> 0:07:20.960 They were usually the most competitive market, most efficient market, 0:07:21.000 --> 0:07:24.000 and so they generally earned a lion's share of what 0:07:24.040 --> 0:07:29.200 we did. After Trump one point, Oh, we believed that 0:07:29.640 --> 0:07:34.920 the clock was ticking, and our fear was not mister she. 0:07:35.480 --> 0:07:38.080 I don't have any opinions about mister she. Our fear 0:07:38.160 --> 0:07:42.080 was American politicians, and so we began a process two 0:07:42.160 --> 0:07:45.600 or three years ago of really building up a supply 0:07:45.760 --> 0:07:49.920 chain in Vietnam and India. So we had about sixteen 0:07:49.960 --> 0:07:53.640 percent of our product out of Vietnam and India. Heading 0:07:53.640 --> 0:07:57.000 into the year, we were about sixty percent China, which 0:07:57.040 --> 0:07:59.880 is low for our industry, but we now know not 0:08:00.160 --> 0:08:03.840 low enough. We've told our factories they need to move, 0:08:04.520 --> 0:08:07.080 and we've told them that it's an urgent matter, and 0:08:07.120 --> 0:08:11.960 we told them we have to move. There are some 0:08:12.120 --> 0:08:15.880 products we will continue to make in China, so some 0:08:16.160 --> 0:08:19.680 educational products can be brought in at an advantageous rate, 0:08:20.160 --> 0:08:23.200 and so we'll leave them there. But on things where 0:08:23.200 --> 0:08:25.280 we really can't move it out of China, we're faced 0:08:25.280 --> 0:08:28.760 with a very difficult choice. And some products may disappear 0:08:28.760 --> 0:08:31.320 from the market for a period of time, but we 0:08:31.360 --> 0:08:33.679 won't produce the product at a price we don't think 0:08:33.679 --> 0:08:38.000 we can sell it, and so we can't buy certain 0:08:38.040 --> 0:08:40.680 products above a certain cost, and so we just probably 0:08:40.679 --> 0:08:45.160 will drop them or hibernate them until we can figure 0:08:45.200 --> 0:08:45.880 out what to do. 0:08:46.760 --> 0:08:48.839 What is the process of moving out of China to 0:08:48.920 --> 0:08:51.000 places like Vietnam and India been, like. 0:08:51.640 --> 0:08:54.240 It's really a building the plan while you fly it 0:08:54.400 --> 0:08:59.120 kind of situation we're seeing, not surprisingly because it's a 0:08:59.200 --> 0:09:07.120 synchronize catastrophe for everybody making everything in China, So everybody 0:09:07.160 --> 0:09:11.600 making everything is moving everything someplace else, so you have 0:09:11.679 --> 0:09:16.480 a big synchronized supply and demand imbalance. We've picked up 0:09:16.559 --> 0:09:20.280 new factories, but the thing about finding a manufacturing partner 0:09:20.400 --> 0:09:23.680 is that you really have to develop a manufacturing partner. 0:09:24.120 --> 0:09:27.360 You can do with other places, but it's hard and 0:09:27.520 --> 0:09:31.120 very often there's something missing, and it's also generally more 0:09:31.120 --> 0:09:33.000 expensive because the volume isn't there. 0:09:37.600 --> 0:09:40.760 So Trump says he's raising tariffs so that companies would 0:09:40.800 --> 0:09:44.920 be incentivized to bring back manufacturing to the US. How 0:09:45.000 --> 0:09:46.000 realistic is that? 0:09:47.040 --> 0:09:50.920 The jingoistic desire to have things made in the US 0:09:51.240 --> 0:09:55.559 is a sort of recurrent theme. It comes and it goes. 0:09:56.440 --> 0:09:59.559 And so for many years, at least ten, we've looked 0:09:59.600 --> 0:10:04.400 for any factory that would work with us to make anything. 0:10:05.160 --> 0:10:08.320 We have over two thousand products, ten products that are 0:10:08.320 --> 0:10:10.440 made in the USA. So we go to a retailer 0:10:10.440 --> 0:10:14.319 and say, here, made in the USA, can't do it. 0:10:14.880 --> 0:10:18.480 And so I firmly believe that there is no capacity 0:10:18.520 --> 0:10:20.720 to make the kinds of products that we make. We're 0:10:20.720 --> 0:10:22.439 going to stay in this business. We can't make the 0:10:22.440 --> 0:10:25.040 stuff in the US. Nobody wants to make it. The 0:10:25.160 --> 0:10:27.520 US market is not set up for this. This is 0:10:27.559 --> 0:10:33.520 a high service, high intellectual property marketplace. US people need 0:10:33.559 --> 0:10:37.760 to earn more money than you can pay to make toys, 0:10:38.440 --> 0:10:41.520 and there just aren't enough people who've invested in this 0:10:41.840 --> 0:10:46.720 very low tech business to compete with Asian countries who 0:10:46.800 --> 0:10:48.640 can do this at a much lower cost. 0:10:49.800 --> 0:10:53.959 After the break, how Chinese manufacturers are dealing with Trump's 0:10:53.960 --> 0:11:08.920 tariffs on the ground. To blunt the pain and uncertainty 0:11:08.960 --> 0:11:12.800 of tariffs, American businesses that have long relied on Chinese 0:11:12.880 --> 0:11:16.319 made goods are now looking to other countries to diversify 0:11:16.400 --> 0:11:21.400 their supply chains. That's put Chinese manufactures under immense pressure. 0:11:22.000 --> 0:11:24.760 We spoke to Bloomberg's Luciulu to get a sense of 0:11:24.800 --> 0:11:26.200 the scrambling on the ground. 0:11:26.920 --> 0:11:29.600 We finally had some numbers that really showed us how 0:11:29.679 --> 0:11:33.480 much damage was done. So Chinese exports the US fell 0:11:33.640 --> 0:11:37.120 about thirty five percent almost in May compared to the 0:11:37.160 --> 0:11:40.760 same period last year. The most sense the pandemic when 0:11:40.800 --> 0:11:44.400 the economy almost basically had to shut down, so these 0:11:44.400 --> 0:11:48.280 aren't small numbers, and of course that sharp decline of 0:11:48.360 --> 0:11:51.920 exports to the US more than offset the rise in 0:11:52.080 --> 0:11:56.000 exports of Chinese goods to other countries that was about 0:11:56.000 --> 0:11:56.800 eleven percent. 0:11:56.920 --> 0:11:59.280 So it really shows sort of the heft of the US. 0:11:59.160 --> 0:12:02.840 Economy and how much Chinese exporters have suffered because of 0:12:02.880 --> 0:12:03.520 the tariffs. 0:12:06.000 --> 0:12:09.400 Now, despite that slow down of exports falling the motions 0:12:09.440 --> 0:12:13.320 twenty twenty, we were also seeing record shipments from China. 0:12:13.360 --> 0:12:15.559 How is that also true? 0:12:15.760 --> 0:12:17.600 Yeah, so I think there's a lot of things going on. 0:12:17.640 --> 0:12:21.640 There's of course front loading orders, there is some rerouting 0:12:21.720 --> 0:12:26.040 going on, and also importantly, we have seen that export 0:12:26.120 --> 0:12:30.520 volumes have grown much faster than values. So that indicates 0:12:30.520 --> 0:12:33.480 that although the volume is up, the prices are falling 0:12:33.720 --> 0:12:37.319 and that makes Chinese goods more competitive. But then that 0:12:37.440 --> 0:12:40.360 also has led to sort of these accusations of dumping. 0:12:40.520 --> 0:12:44.600 It obviously undercuts competitors in other countries, and that's increased 0:12:44.640 --> 0:12:48.040 tensions with trading partners, not just the US. Of course, 0:12:48.040 --> 0:12:51.719 the EU has also been very vocal, So those factors 0:12:52.000 --> 0:12:54.600 are creating additional trade tensions. 0:12:55.280 --> 0:12:57.880 Lucille, I'm sure you talked to many Chinese factory owners 0:12:57.920 --> 0:13:01.560 who make goods for American companies like learning resources. What 0:13:01.679 --> 0:13:05.320 have these factories been doing in response? What's their contingency plan? 0:13:06.200 --> 0:13:08.480 Yeah, so, I mean some of our colleagues spoke to 0:13:08.760 --> 0:13:12.319 one of the suppliers to learning resources, and this company 0:13:12.360 --> 0:13:15.480 has settled on the China plus one strategy. I think 0:13:15.520 --> 0:13:18.000 they're at where a lot of Chinese factories are at, 0:13:18.080 --> 0:13:20.000 which is, in the short term, we want to crank 0:13:20.040 --> 0:13:22.040 things out, we want to ship as much as possible. 0:13:22.400 --> 0:13:25.000 But in the long term, decoupling is going to happen, 0:13:25.360 --> 0:13:28.600 and we need to have a long term strategy. And 0:13:28.840 --> 0:13:31.839 having a factory elsewhere is sort of one of the 0:13:31.880 --> 0:13:37.079 most popular strategies that these factories have pursued. So this 0:13:37.160 --> 0:13:40.040 particular factory, they're going to Vietnam. They're going to be 0:13:40.080 --> 0:13:43.240 an operation next month. But everyone can see that that's 0:13:43.280 --> 0:13:45.200 going to be a long process. No one is going 0:13:45.240 --> 0:13:47.680 to be able to replace the US as the customer. 0:13:47.720 --> 0:13:50.440 In the short term. I think people are just settling 0:13:50.520 --> 0:13:52.480 in for just tougher times. 0:13:53.240 --> 0:13:55.960 What are they telling you about the challenges they're facing. 0:13:56.640 --> 0:13:59.040 There's been a lot of surprises from many of them. 0:13:59.559 --> 0:14:03.120 Skilled les laborers come up as one of the top concerns. 0:14:03.640 --> 0:14:05.600 Many of these factory owners say it's very hard to 0:14:05.640 --> 0:14:08.960 find factory workers as trained as the Chinese workers who 0:14:09.000 --> 0:14:12.240 have been doing this for many, many years, and so 0:14:12.320 --> 0:14:15.960 they have had challenges finding skilled workers, getting them to 0:14:16.000 --> 0:14:19.440 work as long hours as they can in China, and 0:14:19.480 --> 0:14:23.520 then also guaranteeing the quality that they have been able 0:14:23.640 --> 0:14:27.560 to for their buyers. So that's been a challenge. Of course, 0:14:27.600 --> 0:14:30.480 the personal cost of moving away from family is a 0:14:30.520 --> 0:14:34.320 major one, and each of these different countries also have 0:14:34.360 --> 0:14:37.320 different rules which they're still navigating. 0:14:38.080 --> 0:14:41.120 And Lucille, what does all of this mean for consumers 0:14:41.400 --> 0:14:43.480 in the States at the moment? 0:14:43.680 --> 0:14:46.240 I think it's higher costs, and some of them may 0:14:46.280 --> 0:14:49.880 already be seeing that happen. We know that meeting that 0:14:49.960 --> 0:14:54.120 Trump had with major retailers including Walmart, Home Depot, Target, 0:14:54.560 --> 0:14:57.560 and that idea and the fears of empty shelves potentially 0:14:57.560 --> 0:15:00.280 being a driving factor in some of the trained negotiations 0:15:00.320 --> 0:15:04.160 because it has such a big impact for US consumers, 0:15:04.640 --> 0:15:07.680 especially as in years holiday seasons and as we get 0:15:07.720 --> 0:15:11.040 closer to the later half of the year Christmas. So 0:15:11.360 --> 0:15:13.800 that's a big concern for the US. In addition to 0:15:14.000 --> 0:15:17.840 the Chinese exporters. No one is left unscathed. If you 0:15:17.880 --> 0:15:21.360 are shipping to the US, you are having these conversations 0:15:21.400 --> 0:15:24.720 and that spent a lot of hard decisions for these exporters. 0:15:26.240 --> 0:15:27.680 Thanks Lucillo for joining us. 0:15:28.000 --> 0:15:29.240 Thank you, thank you so much. 0:15:34.120 --> 0:15:37.240 This is The Big Take Asia from Bloomberg News. I'm wanha. 0:15:38.000 --> 0:15:40.840 To get more from The Big Take and unlimited access 0:15:40.880 --> 0:15:44.120 to all of Bloomberg dot com, subscribe today at Bloomberg 0:15:44.160 --> 0:15:47.720 dot com slash podcast Offer. If you like the episode, 0:15:47.760 --> 0:15:50.280 make sure to subscribe and review The Big Take Asia 0:15:50.360 --> 0:15:53.720 wherever you listen to podcasts. It really helps people find 0:15:53.760 --> 0:15:56.520 the show. Thanks for listening, See you next time.