Chinese toymaker takes drastic action to survive Trump's tariffs

Economic Times

26-06-2025

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Ah Biao, the founder of a toy factory in southern China that makes magnetic puzzles and sensory tubes for American children, is still in business despite brinkmanship by US President Donald Trump When Trump hiked tariffs on China from 54% to 145% in early April, Ah Biao — a moniker his colleagues and friends call him — rented a factory in northern Vietnam. He packed 90 sets of iron or steel molds into 60 boxes, some weighing over than 700 kilograms (1,540 pounds), which were shipped to the Southeast Asian country for production to evade levies.Four weeks later, Trump abruptly lowered those tariffs back down to 30% in a 90-day truce with Beijing. Those same molds were quickly moved from a Chinese border town where they were awaiting customs clearance and rushed back into production in Shenzhen.Some production lines are operating 24 hours per day in two shifts. Furloughed workers — who kept their jobs after Ah Biao decided not to implement a plan to lay off a third of them — returned with full pay and overtime. Sixty more people were hired. In the meantime, Ah Biao is fervently keeping track of what's left of shipping availability to get his toys into the US as quickly as possible.Ah Biao, founder of Shenzhen Kate Plastic Products Co., is emblematic of millions of exporters across China's vast $4.7 trillion manufacturing sector. For all the attention on Trump's pledge to bring mass manufacturing back to American shores, one thing has become clear: China's factories are finding ways to remain central to the global supply chain.'I felt that it was useless to just worry, you just have to do what you have to do. We can only act according to circumstances,' said Ah Biao, who declined to use his full name due to sensitivities around discussing geopolitical topics, of the ups and downs of the past few months. 'In short, the world is round, and we will always find a way.'That was already evident from the US President's first trade war with China, when exporters responded to tariffs by pouring out into Southeast Asia; Chinese businesses own over half of Cambodia's factories now, according to the country's industry ministry. Now in Trump's second, more damaging trade barrage, the exporters are also more determined to survive.The abrupt whiplash of trade negotiations has underscored the nimble resourcefulness of Chinese exporters, and their ability to stay relevant even as scores of countries try to slow the flow of imports from the world's second-largest economy.'The US was willing to lower tariffs because it's very unlikely that Chinese products can be totally replaced in the short term,' said Jacqueline Rong, chief China economist at BNP Paribas SA. 'From the US standpoint, this was essentially a stress test that made it clear that there's no way to break away from China's supply chain in a short period of time.'Ah Biao, known to his US customers as Bill, said the company always valued relationships with American clients, who delivered large, stable orders for years uninterrupted — the US is its biggest market.During the supply chain and geopolitical chaos of the pandemic, the company's clients started asking it to look into diversifying manufacturing from China. He spent a month in Vietnam in 2022 in search of a new production base, but was disheartened by what he saw — upfront rental costs were extremely high, hiring skilled workers was difficult and shipping raw materials and equipment from China was expensive. The challenges there made the company realize it would take more time than expected to plan for the move.In the years since, Ah Biao said the company maintained good relations with his US clients, the biggest of which is Learning Resources Inc., a retailer of educational toys. His factory produces educational toys for the Vernon Hills, Illinois-based company, which sued the Trump administration in April over the tariffs.At its peak, as much as 80% of Learning Resources's products were made in China, Chief Executive Officer Rick Woldenberg told Bloomberg News, but as US relations with China worsened he decided to build up supply chains elsewhere. 'After Trump 1.0, we believed that the clock was ticking and our fear was not Mr. Xi,' he said, referring to Chinese President Xi Jinping. 'Our fear was American politicians.'Woldenberg, whose products include the popular Farmer's Market color sorting game and the Code and Go Robot Mouse sold online and at stores including Target and Walmart, said he sees no choice but to move manufacturing away from China. He's had tough conversations with long-term suppliers over the last several months.'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,' he said. 'I don't know where is safe. I can tell you that the wind is blowing in such a way that I don't feel secure in my future to have a manufacturer in China — I really don't.'At the start of 2025, about 60% of Learning Resources's products came from China, with the rest sourced from Taiwan, South Korea and elsewhere. That level, Woldenberg said, is 'low for our industry, but we now know not low enough.'While some see Trump's attempt to curb imports from China in the context of a superpower rivalry between the world's two biggest economies, manufacturers have yet to receive any direct state support.Officials are concerned about manufacturers' plans to lay off workers or shift overseas, but financial assistance is unlikely as local governments in China are grappling with high debt levels, said multiple Guangdong-based Chinese exporters and one government worker who have direct knowledge of such discussions, and who spoke on the condition of anonymity due to sensitivities around the issue.The Department of Commerce of Guangdong Province didn't reply to a faxed request for comment.The US and China agreed to maintain tariffs at their current, lower levels following discussions in London earlier this month. But Ah Biao no longer holds out hope that things between the US and China will improve in the longer term.'It would be great if the two sides talk and make compromises, but it won't bother me much if it doesn't go well,' said Ah Biao. 'We've been through the worst.'That pushed Ah Biao to pull the trigger finally on his Vietnam move, and he isn't the only one. In the first quarter of this year, combined investment from China and Hong Kong into Vietnam reached nearly $2 billion, up 23% from the year before, according to Vietnamese government data.'We are hearing from Chinese companies,' said John Dwyer, founder of Peregrine Management International, a Hanoi-based firm that assists companies looking to relocate to Vietnam. 'Their customers want to start production in Vietnam factories. They are looking for ways to de-risk themselves.'Shifting to Vietnam inevitably means that some of Ah Biao's workers must relocate, too. To sweeten the offer for his more senior employees, Ah Biao said that he may consider to raise their compensation by 50% at least, with guaranteed vacation time for them to go back to China to see their families.It's a big, and expensive, gamble for Ah Biao, but at 40, retirement is still too far away to contemplate folding. He thinks he's young enough to make big bets during a time of turmoil to scale up his business, but he has learned a valuable lesson of not putting all of one's eggs into one basket.'I always tell my people that we should act like an 'unkillable cockroach,'' said Ah Biao. 'It's deeply embedded in our DNA.'