An American Toymaker Struggles to Break Up With China

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1:19On a summer morning, a group of us, Americans, Chinese and Vietnamese, are packed in a van. We're moving fast on a brand new highway that slices through Vietnam's Red River Delta. We're on our way to a toy factory. But just a few hundred yards away from the factory gate, we've come to a dead halt, stymied by an unexpected obstacle. Huge puddles. The maps apparently didn't identify this river that's sitting under the road. The road leading to the factory gate is pockmarked with water-filled potholes as big as truck tires. The only option is to get out and walk the last 100 yards.

2:09It's barely 9 a.m., and it's already 90 degrees. My travel companion is ready to face the heat. It's hard to dress for these factory tours. I've now just basically created an attire of a T-shirt and some sort of very lightweight pants. I'm here with Alana Woldenberg-Ruffman, Vice President of Marketing and Product Development for Learning Resources, a family-run toy company just outside of Chicago. She's a mechanical engineer by training and helps run the family business alongside her dad, CEO Rick Woldenberg, and her two brothers. You know, some of my earliest memories with toys would be like the Learning Resources cash register or like the pretend phone, which is a little dated at this point.

2:53You need the pretend iPhone. The company traces its roots back more than a century ago to Lana's great-grandfather. These days, if you have young kids, there's a chance you know their products. Botley, the coding robot, and pretend cash registers are a hit with consumers. Hello. Do you see Botley, the coding robot? This is the Pretend and Play Learning Resources cash register. There! Most of these toys are made in China and sold through major retailers like Target and Walmart. For years, it was a winning formula. Efficient Chinese factories produced low-cost goods, and American consumers benefited with affordable prices.

3:39But President Donald Trump's return to the White House and escalation of the trade war that began in his first term has upended that formula. On April 2nd, Trump announced the steepest American tariffs in more than a century, with a 10 % minimum tariff and even higher duties on some 60 nations, starting with China. So if you look at that, China, first row, China, 67%. That's tariffs charged to the USA, including currency manipulation and trade barriers. For Learning Resources, this was a gut punch. The company had already started shifting production out of China during Trump's first term. But at the beginning of the year, about 60 percent of its toys were still made there.

4:29Here's Alana. At 145 percent, it's a ban on our products. People didn't know what was going to happen to our business. Within weeks, Learning Resources took the Trump administration to court and won. A district judge in Washington, D.C. ruled the president's tariffs were illegal, but the levy stayed in place as Trump appealed. Now the case is headed to the Supreme Court, with arguments set for next week. We're the only private company that brought our own lawsuit. We were kind of faced with the decision of die or do something. While battling it out in court, the company also began rebuilding the manufacturing network it had spent decades developing.

5:10We don't know what the tariff rates are going to be at any given time on any given day. And so we're proactively out here trying to diversify our supply chain so that we are able to ride the waves. At the end of the day, we're just, we're betting. It is highly likely that some products that we move, we will have to move again. We're following along as Learning Resources is forced to shift its supply chain to Vietnam. And as a company tries to move forward, it's also confronting a hard truth. China's manufacturing infrastructure, built over decades, isn't something you can walk away from overnight.

5:47Because China has been a manufacturing hub for so long, it developed a lot of expertise. That same infrastructure doesn't exist anywhere else in the world today.

6:04This is The Big Take Asia from Bloomberg News. I'm Wan Ha. Today on the show, you can move manufacturing out of China. But can you really take China out of manufacturing? We hit the road with an American toy maker caught in the crosshairs of Trump's shifting trade policy and uncover the hidden costs of trying to stay one step ahead.

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7:46Before this trip, I hadn't been back to northern Vietnam since the pandemic. I was born in Saigon when I was still the capital of South Vietnam, a country divided by war. After the U.S. withdrew in defeat in 1975, the country was unified under communist rule. But it was left deeply impoverished. Families like mine, who had fought on the losing side, faced bleak futures. Here's my dad recounting the fears that gripped him after the war ended. I feel danger. I don't know when they catch me, put the jail, and I don't know what I can do because I am a soldier. My dad fought for South Vietnam against the communist forces.

8:32After the war, soldiers like him were sent to re-education camps, and their families were branded as traitors. They were denied access to jobs, higher education, opportunities to improve their lives. Then I don't see a future for me Then how about you guys, you know No future That's the reason we try to escape You know, we need to go Leave Vietnam, we go We fled as boat refugees when I was a child And resettled in California I still remember my parents reading letters from relatives back home My mom, reduced to tears by the accounts of failed harvests the lack of medicine, and pleas for financial help.

9:15In the late 80s, Vietnam began economic reforms. But it wasn't until 1994, when the U.S. lifted a decades-long trade embargo, that the country truly opened to global trade. A year after Vietnam and the U.S. signed a historic trade pact, sales at this garment factory in Hanoi have hit record levels. In 2010, more than 30 years after my family left, I was hired as Bloomberg's Vietnam beer chief in Hanoi, where we chronicled the country's growing manufacturing prowess. I followed Vietnam's rise since then, but nothing prepared me for the pace of change I'm seeing now. Wow, look, all of this is, look how much construction.

9:57We're heading to a factory called Dong Phuong. It's tucked inside an industrial park in the town of Phu Li, about an hour's drive south of Hanoi, and roughly 130 miles from the Chinese border. The industrial zone was approved in 2017, just months after President Trump first took office and began threatening China with trade actions. Within two years, rice fields were transformed into a sprawling complex of factories. Dongfeng, stretching nearly two football fields long, was started by a Chinese entrepreneur who ran a manufacturing plant in eastern China for 15 years. They are tiny, like they love folks who said.

10:38Got a big palm in the front. That's Jimmy Lee, a manager from Longshore. The company makes toys in China and is a longtime partner of Learning Resources. In Vietnam, they're helping to connect the American company to factories like this one, with Jimmy often on the ground to oversee projects. He's talking about the pond at the factory gate. In Chinese culture, having water near the entrance is seen as a sign of good luck. And if you add a north-facing gate, even better. It seems like they had a 100 % north door with a pound in the front. You know, it's a typical feng shui setup. Alana and her team are visiting Dongfeng for the first time.

11:22It's one of a dozen factories they'll visit this week to assess production and find ways to control costs that are already rising. We begin our tour in the warehouse, where bags of raw materials, including plastic resin, are stacked five feet high. So one of the things that we've been working through with our factories is literally where they get the raw materials. That's a big element of controlling the cost. So, like, this is ABS. Alana leans over sacks of glossy plastic pellets, scanning the labels. She's inspecting ABS, a common plastic used to make Lego bricks, as well as Learning Resources toys.

11:59Yeah, so do you know if all the ABS comes from China for this factory, or are they getting it from other countries too? I think the import from out of China also, but main source should be in China. Yeah, and ABS is a particularly challenging type of plastic. Turns out only two types of plastic the factory needs can be sourced locally in Vietnam. And we soon realized the trucks pulling into the factory earlier were loaded with raw materials from China, making routine deliveries of imported parts. We pass the warehouse and step onto the factory floor, stopping in front of an injection molding machine.

12:35So there's piping in here that's feeding in the plastic pellets that we just saw, and it's going to melt them into a shape of the steel mold. The plant is currently making more than 50 Learning Resources toys, with more coming in. One of them is Campfire Chatmallows, a product that's being made in Vietnam for the first time. It's a storytelling toy designed to spark conversations. Imagine a cozy campfire that flickers with LED light. There are soft, squishy marshmallows called chatmallows, each printed with a unique emoji. A magic wand, a storm, a jigsaw puzzle. Once upon a time, there was one little boy who was playing jigsaw puzzles.

13:21These images are story starters. Kids slide them onto sticks and pretend to roast them over the campfire while telling stories to each other. At the injection molding machine, a robotic steel arm grabs onto squishy marshmallows that have emerged from the mold. Ilana says that kind of automation is actually missing in many of the factories she's visited this week. The automation isn't here yet. So like you look around and there's a lot of people, but there's not as many machines covering the same thing that a person might do. And so that's going to bring the cost up a little bit. In Vietnam, factories still rely heavily on manual labor because advanced machinery like this isn't easy to come by.

14:04It's expensive and often needs to be imported, likely from China, which dominates much of the market for toy manufacturing. And even in factories that do have automation, like this one, Alana's noticed something else that affects productivity. So whereas in China, it might take one worker to work a machine, in Vietnam it will take two workers because they don't understand, they're not as familiar with the machine in Korea. So it'll take six to 12 months for them to really learn it and to get it to the same level of automation that exists already in China. Jimmy says this factory has about a third more workers than a similar plant in China.

14:42And unlike Chinese laborers who've worked years or even decades at facilities like this, many of these workers are new to assembly work. Some of the staff we spoke to came off farms and are relatively new to assembly lines. That lack of experience, combined with lower automation, hits productivity. Alana says some vendors report making 4 ,000 units a day in China, but only 2 ,500 in Vietnam. We follow the Chattmellers production through the paint department, where workers manually spray red and orange flames on the toy. Then onto the assembly floor, where hundreds of workers in blue company-issued polo shirts and caps sit at long metal tables.

15:26Workers on the line split open the plastic logs, insert screws, install battery contacts, and solder the electronics board. On the assembly line, a Chinese manager is showing a worker how to fit a part together, pointing out where to pay extra attention.

15:48His instructions in Mandarin are translated into Vietnamese, and the workers' questions are relayed back.

16:03This factory has relocated about 20 engineers and managers from China to Vietnam. And that's to help bridge the gap in experience and technical know-how. It's a common practice for factories here. Jimmy says Chinese workers have developed specialized skills over decades that are difficult to quickly replicate elsewhere. Every single Chinese factory moving from here, they will rely on their own team to build up. I mean, the core member of the team will be still Chinese people that are with experience. The tariffs also bring another risk Learning Resources has yet to calculate. To explain, Alana picks up the Chatmello toy.

16:47The interior, these chips are made and produced in China and then imported here. The soldering is done locally. This product will need batteries. Those will be imported. You cannot buy batteries locally in Vietnam. The metal is imported. That's a big contrast to China, where more than 10 ,000 companies form an extensive sourcing network for the toy industry. Vietnam's toy suppliers are in the hundreds, a fraction of what China has. So within a city center or a geographic area in China, you can find a plastic supplier, a print supplier, a foam supplier, a wood supplier, and so on. So all that is available locally.

17:29That same infrastructure doesn't exist anywhere else in the world today. All these imported materials could spell trouble for businesses. On top of the 20 % tariffs on Vietnam, Trump has also slapped a 40 % transshipment rate on goods that originate in China, but are then exported from Vietnam. That extra levy is designed to crack down on companies that reroute made-in-China products through Vietnam, adding little or sometimes no additional manufacturing. So far, the administration hasn't offered any guidance on how these higher duties will actually be enforced. So the rules on train shipment haven't been fully defined yet.

18:10So these are things that we need to guess on and whether componentry, which is brought in from other countries, might impact the tariff rate. Ilana says all these factors add up. More workers, less automation, imported components, Chinese engineers. They make manufacturing in Vietnam 10 to 15 percent more expensive than in China. Alana says the entire process, scouting factories, moving molds, prototyping, adds up to millions of dollars. They're not recoverable. There's a lot of costs here that aren't recoverable. Orders that we've lost, like those will never come back. Costs that are being passed to customers.

18:51Like all these things are irreparable harm. And that's, you know, part of why we were motivated to bring the lawsuit is because there's a lot of damage being done. and there's a lot of small, medium-sized businesses who don't have the ability to stand up. And so we wanted to stand up on behalf of the thousands of companies like ours who are impacted by this. After the break, what does the supply chain shift mean for workers on the factory floor, for families in nearby villages, and for American consumers back home?

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20:46The town of Phu Lh, about 40 miles from Vietnam's capital city of Hanoi, sits in the Red River Delta. It's in a valley surrounded by lush, green, karst limestone mountains, a postcard landscape, until you get close and see the peaks being quarried to build roads and industrial parks. It's a small, off-the-beaten-path town that historically attracted mostly locals. But during our time there, we bumped into Chinese visitors and heard Mandarin at breakfast and at roadside cafes. Most hotels were nearly full because most rooms were now being used to house Chinese workers, a trend that began in the past year.

21:27My own family left Vietnam during a time of high tensions with China, with the two countries engaged in a border war in 1979. Then Vietnam harassed ethnic Chinese and questioned their loyalty. It forcibly expelled families with Chinese roots who lived along the northern border regions. My father's side of the family had immigrated from China to southern Vietnam in the early 1900s, And those discriminatory policies after the war pushed out families like ours. And we buy the old boat, and we modify the boat run on the ocean. In the summer of 1979, my father and his brothers retrofitted a riverboat to make it seaworthy.

22:12And my grandfather navigated our way through the South China Sea. All 300 of the people who fled on our overloaded boat were ethnic Chinese. And we take a chance 50-50. You know, 50 die, 50, you know, alive. No, 50-50. Through the years, my dad has talked about that difficult decision to risk all of our lives on the sea because he and my grandfather couldn't see a way for his children to have hopeful futures in our homeland because of our ancestry. We brave storms and pirate attacks to become refugees in faraway countries. Countless others didn't survive the journey. In Vietnam, that dark chapter is all but forgotten.

22:58Though relations between China and Vietnam still have points of contention, they're entwined economically. Chinese investors are embraced more than ever, and Chinese capital funds nearly 30 % of all new projects.

23:15Just a few hundred yards from the Dung Phuong plant, we stop at a roadside eatery, right across from the site of new factories under construction.

23:28Winti Tuin is 78 years old. She's just finished lunch and is chatting with her neighbor. This is my hometown. These were rice fields all the way to the river. Long before the factories arrived, generations of families here, including twins, work the land. Rice, wheat, cassava. In Vietnam, land is sacred. After babies are born, their umbilical cords are buried in the fields to ask the land to protect them. And when they die, they're often buried in the same rice fields where they toiled.

24:10All of this area used to be my family's fields. All the way out to there. We are farmers. What do we do without our fields?