Nicholas P. Brown
(Reuters) – On April 9, a day after President Donald Trump's 145% tariff on Chinese imports began to influx. Customers are canceling orders for toys from Huntar Company Inc.’s factory in Guangdong Province, China.
But Huntar CEO Jason Cheung, 45, has stopped production at the 600,000-square-foot factory in Shaoguan. He saw tariffs on it: an existential threat to his company, which produces educational toys tied to Walmart and targets’ shelves, such as the number blocks of Learning Resources Inc, which help teach kids math.
“I need to save money as soon as possible,” Zhang said. In the next four weeks, he cut production by 60% to 70%, accounting for one-third of the 400 Chinese workers in the factory and reducing the time and wages of those still employed.
Now, he is pursuing crazy, long-term efforts to move his business to Vietnam, and then his father made money before the company he founded 42 years ago.
He thinks he has about a month.
According to trade group The Toy Association, Huntar's plight represents a crisis facing countless factories in China, with about 80% of toys sold in the United States being manufactured. In the brutal trade war with the United States, new orders have dropped sharply, threatening both countries to destroy the sector.
Huntar is also unique in a key way: based on the United States, it spans two sides of the trade war.
On paper, the sheet is Trump's bogey and the owner of the Chinese factory works in the United States. But he is also a small business owner in the United States that imposes tariffs designed to protect. He is the American son of Chinese immigrants, running a second-generation family business that employs 15 employees in the United States – if Huntar fails, they will lose their jobs.
Trump said tariffs will incentivize companies to reshape manufacturing, or at least drive it out of China.
Huntar explains why economists say it is unlikely: facilities and workers lacking toy expertise in other countries; heavy equipment is hard to move and will cost millions of dollars of alternative equipment; and, most acutely, there is no time to address these barriers until the safe is dry.
More likely, the Qing-style factory would simply be closed, a source familiar with Chinese government thinking told Reuters that the prospect would bring Beijing to the negotiating table with U.S. officials.
In fact, China cannot replace the U.S. market demand for product categories such as toys, furniture and textiles, which have felt the impact of tariffs, an official said. As trade talks begin, Trump said he is willing to reduce Chinese tariffs to 80%.
Zhang said that would not help Hental, noting that any tariff rate above 50% would make survival difficult. On the actual level, there is no difference between the 80% and 145% tariffs he currently faces.
Zhang said that the crisis had hit Hental before, but that was not the case. The 2008 recession brought about a steady slowdown that he could plan. The common pandemic has dealt a blow, but his production volume is still high enough to allow him to pass a temporary downturn.
“Our manufacturing business essentially stopped overnight,” he said. Zhang began to feel that his only hope was – hope.
“I searched five to six times a day and hoped that there would be some changes,” he said.
Dreams and lucky table
Huntar makes toys for sellers in our, Canadian and European countries, such as Learning Resource Inc and Play-A-Maze, which distributes them to retailers or sells them directly to consumers.
Cheung estimates that it also made its own educational toys under its popular gaming brand, which it had to stop shipping to the U.S., and so far the company has spent hundreds of thousands of dollars.
Dan Harris, a partner at Harris Sliwoski, said that U.S.-owned factories in China are not common.
However, Huntar was founded in 1983 by Cheung's father, a few years after fleeing Communist China and settling in the Bay Area.
Zhang grew up in the Nerichmond district of San Francisco, and in a small house, you just have to kick open the door. His father would sell clothes and furniture at flea markets to boost his janitor’s salary and carry a celebratory label and shed tears in boredom.
As the action matured, Zhang's father built a factory in China to control quality more. Zhang, who joined the company in 2004, still uses the table his father set up in their living room decades ago.
“We think maybe we're lucky,” he said.
Lucky for everything in recent weeks. The factory sits on $750,000 canceled goods – the value of the value can't be fully restored, and even if the trade war is over, his shipping costs will certainly soar with the competition among the factories. Zhang recalls that this is what happened after Covid, when shipping costs ranged from $2,000 per container to over $20,000.
“They shouldn't get that,” said Rick Woldenberg, CEO of toy company Learning Resources.
Woldenberg canceled future production in China, saying his annual tariffs would jump from $2 million to $100 million. “It's not the person we want to be, but they know we have no choice,” Waldenberg said.
More than 45% of small and medium toy companies in the United States say Chinese tariffs will shut down them within weeks or months, according to a survey conducted by the Toy Association in April.
Learning Resources, which employs 500 people in the U.S. and produces 60% of its products in China, has sued the U.S. government for federal judges to prevent tariffs from taking effect.
“If nothing changes, we'll be paralyzed,” Waldenberg said.
“Eat yourself”
Zhang has been searching for his contact list and calls the factory in Vietnam, hoping to find Hental’s new home.
Moving to the United States is impossible. Zhang said wages are so high that U.S. manufacturing is more expensive than staying in China and absorbing tariffs.
Even in Vietnam, financial and logistical barriers have proven too high.
Few factories have enough space to handle their operations, and the competition is high. Even if he finds a good place, Zhang must train new employees and conduct safety and quality control checks, which will likely take several months.
There is also infrastructure problem. Chang's factory is solar-powered and helps ensure profitability in the thin profitable business. It has specific HVAC and wastewater systems designed to eliminate environmental risks of spray paint and chemicals used to decorate toys. It has over 30 injection machines, each weighing several tons, by pumping molten plastic into a steel casing. These may not be moved, and Zhang said he wasn't sure where he found the money (more than $1 million) to buy new ones.
A more realistic move is to outsourcing some operations and closing others. Zhang can cut losses by finding Vietnamese factories to capture Huntar’s popular proprietary product line while abandoning third-party customers toy manufacturing operations.
Going all out – that is, keeping his factory in China intact, hoping the trade war is resolved – is a high-risk, higher game. If the tariffs drop quickly, his company will survive, but if not, he will lose everything. He said keeping large plants running and paying employees, while only a small portion of normal output would sink him within weeks.
“I'm approaching this moment and I have to basically choose to eat myself,” he said.
It's hard to cut down on businesses that once embodies the American dream. Zhang's father escaped China in 1978 and crossed the Shenzhen River to Hong Kong, all for free shooting. He said he “wanted to see the business continue to me and hoped that his grandchildren would be with him.”
He said his father was desperate these days. Despite thanks to the life he built here, the gloss of America is the land of milk and honey. Zhang said: “His idea of the United States has certainly changed.”
(Reported by Nicholas P. Brown, Editors by Vanessa O'Connell and Michael Learmonth)
