India Wanted to Become The World’s Toymaker. Then Tariffs Happened

0:01Bloomberg Audio Studios Podcast Radio News The morning of August 14th, like the start of most days on the outskirts of New Delhi, was hectic. Cars jostled with buses, tuk-tuks, trucks, and the occasional cow, as millions of Indians made their way to work. But for Amitabh Karbanda, that was all a breeze compared to what awaited him on his factory floor. That was a crazy day. Our team worked non-stop. Amitabh is the managing director of Sunlord, a manufacturer that specializes in plush toys. I met him at his factory in the city of Noida, just outside of New Delhi, and he told me about that hectic day.

0:49That day I clocked about 29 ,000 steps. I guess an average of 10 ,000. Most of Sunlord's toys end up in American homes. teddy bears and Disney's Elsa princess dolls for Walmart. Nursery products for Pottery Barn and West Elm. This is the packing area, metal detection. His factory was racing to get a container of kids' yoga balls covered in plush fabric, assembled, packed, and shipped out fast.

1:25This was the very first order for a new customer. American toy maker Learning Resources. And they had two days to make it happen. But Sun Lord's deadline wasn't set by their new customer. It was put in play by the White House and President Donald Trump. The White House making a move to slap a 50 % tariff on imports from India. White House trade advisor Peter Navarro cranked up pressure on India to halt its purchases of Russian oil. Earlier this year, India seemed like a safe bet. President Trump and Indian Prime Minister Narendra Modi were developing what seemed like a bromance. Modi visited the White House in February.

2:06Many businesses thought India would be one of the first countries to strike a new trade deal with the U.S. The government had kind of said, you know, this is going to be a safe place to manufacture. This is one of our priority countries. Ilana Woldenberg-Ruffman is vice president of product development for Learning Resources, based outside Chicago. We met earlier this year when I traveled with her to visit factories in Vietnam. We really started to amp up our efforts to expand our presence within India. The fact that the tariff rates on India changed with like four weeks notice has real implications on real businesses like us.

2:43Like many U.S. companies, Learning Resources has been looking to reduce its reliance on China since Trump's first trade war. But when Trump took office this year and began ramping up tariffs with the aim of raising money and bringing manufacturing back to the U.S., that put the Chinese end of the supply chain under pressure. It pushed Learning Resources to accelerate its plans to shift its supply chains elsewhere, to Vietnam and to India, to companies like Sunlord. But then Trump surprised India and slapped its goods with one of the highest tariff rates facing any major manufacturing country. India has been a good friend, but India has charged basically more tariffs than almost any other country.

3:26And for Sun Lord, that meant the pressure was on. So the goods need to be in the stores by 1st of October for the Christmas sales. With tariffs doubling, Learning Resources asked Amitabh's factory to speed up production. His team worked into the night pushing 15 ,000 pieces through final assembly and packing. That shipment barely made it out and was slated to land in the U.S. one day before the higher tariffs went into effect. Whatever was shipped before 27th August was 25 percent. Was shipped now is 50 percent. When you're an American company sourcing products half a world away, there's already enough uncertainty to contend with.

4:09Tariffs don't just add cost, they add chaos. The boat ended up getting checked in six hours too late. So the shipment had a 50 % tariff instead of a 25 % tariff. That cost the company$50 ,000. The cost of those tariffs is entirely something that we as an organization have to pay. It is us, an American business, that had to pay those tariffs. The irony of it is had we left it in China and eliminated all the work of finding a new factory, moving it, the product, training the factory, testing, etc., it would have been cheaper.

4:54This is The Big Take Asia from Bloomberg News. I'm Wan Ha. Trump's tariff war with China was supposed to create an opportunity for India, a chance to become the world's next factory floor. But then the White House changed its mind. Today on the show, I travel to India and go inside the factories scrambling to adapt to Washington's tariff whiplash and get a ground view of the uniquely Indian solutions to build a manufacturing powerhouse without China.

5:33Thank you. I'm at Sunlord's factory. in an industrial park outside New Delhi known as Noida Toy City. Amitabh Karbandha is introducing me to his father, 81-year-old Ashok Karbandha. Hello, sir. This is Oan. She's from Bloomberg. Ashok founded Sun Lord in 1979. Back then, the company made women's clothing and decor, like curtains and cushions for export. Amitabh built out the company's toy sector, which now makes up the bulk of the business. Ashok still serves as chairman, overseeing the company's finances, and comes into the office most days. Father and son often eat lunch together in the office's homey kitchen.

6:20This is lentils. Normally you have lentils and gravy, but this is a dry pharmacy specialty. It's a family recipe, cottage cheese, and this is potatoes. Amitabh joined the business after college with a degree in chemical engineering. Over lunch, he shares that his own son, representing the family's third generation, will soon be joining the company. He studied economics here in India, and then in the U.S., he did his master's in sustainability management. It occurs to me that most of the toy makers I've met during this journey are family businesses. The Chicago toy maker I've been following, Learning Resources, is run by the founder's grandchildren and great-grandchildren.

7:02For decades, it's relied on Chinese manufacturers who are also family-owned. In Vietnam and here in India, the toy industry is dominated by companies passed down from generation to generation. It's part of the reason the U.S. trade war is so devastating. The mom and pops here lack the deep pockets of major corporations. As the tariff regime changes, pivoting won't come easy. The kind of uncertainty we are facing now, I've never faced in my life. and which is totally out of your control.

7:37Today, Sun Lord employs about 900 workers in three factories. It specializes in bespoke nursery items like crib bedding and fabric toys. This is Christmas decor for one of the Williams-Sonoma brands, which is a Disney range, Disney-designed Christmas decor. It's a Snoopy. Pluto. Pluto. Pluto, yeah. When Trump briefly raised tariffs on China to 145 % earlier this year, Amitabh was inundated with phone calls and emails. His factory was already running full, so he's only been able to take on a few new clients. One of those was Learning Resources, which ordered the yoga balls. They're covered with colorful, furry animal faces, unicorns, penguins, and puppies, and they'll be sold in Walmart stores for the Christmas holidays.

8:30But after that first rush shipment in August, things have stalled. There was a plan for a second order, but that has now been postponed. Amitabh says Learning Resources has put about two dozen other products it was exploring with this factory on hold, too. New orders from existing customers have also been pared down. And instead of growing 15 percent this year's planned, the company will be lucky to even see a 3 percent growth. There's a lot of unpredictability. You don't know what's going to happen tomorrow. In the short term, new investments, new products are a bit on hold. It's a pattern playing out across India's burgeoning toy sector.

9:11India's higher tariffs on goods to the U.S. put it at a disadvantage. Both China and Vietnam have struck better deals with lower levies. And the weight of India's sky-high tariffs is causing pain in the country's biggest industrial hubs. We produce 200 ,000 darts every day. That's Vijendra Babu, the founder of Microplastics, the largest toy maker in the country. I've flown to Bangalore, a thousand miles south of New Delhi, to tour Vijendra's plant. The factory is huge, 650 ,000 square feet of manufacturing space that stretches over more than 11 football fields. This we supply to Walmart. The plant looks busy, with hundreds of workers assembling Nerf guns, Paw Patrol cars, and Little Tykes baseball sets.

10:01But Vijendra says the factory isn't anywhere near capacity. We are in still end of September. Supposed to be a very, very peak season. But you can see still it is a bit slow. I really come to understand how badly tariffs have hit his business when he shows me the plant's warehouse. And it's eerily quiet. The storage area is as big as five Olympic-sized swimming pools, full of products that were pulled off the production lines after Trump slapped that 50 % tariff on India. All these are waiting to be fully assembled now and then to be shipped because of the order stoppages and order cancellations.

10:40So we are just trying to store here. So different toys, different parts of toys. You can see in thousands and thousands it is there. During our tour, he gets on a video call with one of his two other factories and shows me an even bigger warehouse with racks stacked full of finished products. Waiting for shipping. Packed and ready to go. Everything done. Packed and ready to be shipped. As much as a quarter of the factory's orders have been put on hold or canceled, Vijendra estimates the factory might be stuck with as much as$20 million worth of goods. Then there's the loss of new business, which he says represents as much as$15 million, all on pause.

11:21Like Amitabh, Vijendra started the year with an ambitious growth plan, 40%. Existing customers were already looking to move products from China. New clients wanted to place orders. So he built a new 300 ,000-square-foot facility to prepare for the new demand. This plant is completely ready. We should have opened and we should be getting the machines in the next two months now. But now we are also waiting. Should we order those machines? Should we wait and watch? So we have taken attention to wait and watch now.

11:57With so much uncertainty, where does India's toy industry go from here? And can President Trump's tariffs really bring toy manufacturing back to the States? That's after the break.

12:24Wow, it's huge in here. It's a 650 ,000 square foot plant. You'll have a good amount of walking today. In a corner of the massive microplastics factory outside Bangalore, the sound of heavy machinery fades away. Vijendra Babu, the founder, brings me to the second floor. Here, the facility's industrial scale gives way to delicate artistry. It's like going to a beauty salon to get those hairstyles and other things. It really is like a salon for tiny dolls. And it requires all the expertise of a team of highly trained hairdressers, only in miniature. I watch a worker handle the first critical step, hair rooting.

13:09He holds a bald plastic doll head up to a machine. As he rotates it, needles punch fine blonde strands with rapid-fire speed. In seconds, the doll goes from bald to having a full head of shimmering hair. Like hair transplantation, you know? You can see that. That is very much like a hair transplant. You can see. Then, the real magic happens. I watch as dozens of women transform these wild manes into bobs, wavy curls, high ponies, and elaborate braids. Yeah, you see the different styles there? It's very difficult to do it by machine. Watching these rows of skillful stylists, I realize this is where India's manufacturers have a true advantage over the rest of the world.

13:56Even today, you can't automate a tiny, perfect French braid. You need human hands. I asked Vijendra if he thinks this kind of toy manufacturing can be done in the U.S. It's not that it can't be done, obviously, but it's all about the cost. Machines can manufacture these things, but then there's a lot of decoration, a lot of printing, a lot of plush which requires sewing, requires stuffing. This reliance on skilled human hands reveals the flaw in Trump's promise to bring manufacturing jobs back to the U.S. These workers here make about 23 ,000 rupees a month, or about$250. Americans can't live on wages that low.

14:38So if these toys were made in the U.S., one of two things would have to happen. Either wage costs would rise, pushing the price of these toys to unaffordable levels and driving the manufacturer out of business. Or the entire process would need to be automated. This leaves the world's toy makers in a bind. They can't stay in China, and Made in the USA is out of reach for low-cost, low-margin products. The world needs a new workshop, a place with millions of workers ready to step onto the assembly line. Could that place be India? I believe this is India's moment. Manu Gupta is chairman of the Toy Association of India, a trade group for the manufacturers and dealers in the country.

15:23This industry has the potential to become the next exile of the government industry for India. Entrepreneurs are here, ready and willing to invest. The ecosystem has been created. Prime Minister Modi is certainly betting that India can become the world's next toy factory. In 2020, he launched the National Action Plan for Toys to try and capture a slice of the$100 billion global toy market. Modi's blueprint includes strict safety controls for all toys sold in India. And ironically, a 70 % tariff on imported toys. That's all designed to keep foreign competitors, namely China, out. Companies like Learning Resources see a lot of advantage in India's scale.

16:06And unlike Vietnam, where wages are rising as factories compete for a smaller pool of workers, the size of India's workforce keeps labor costs low. And Gupta of the Toy Association says the country's manufacturers are playing the long game. A lot of companies understand and consider that these tariffs are not going to stay for too long. You need to prepare India and their manufacturers so that whenever these tariffs come down, they become an alternative to what they're buying in China, Vietnam, Indonesia. Preparing India's toy industry will require some big changes. Modi's National Action Plan has shut out foreign producers.

16:48But local manufacturers have been making toys mainly for domestic consumers. Alana of Learning Resources says this means most Indian factories aren't yet making goods with a quality that international buyers demand. I think really the next big thing is just going to be adjusting the factories to align to Western standards. So quality standards, timelines, all those sort of little details that come with working with a new partner. Alana sees India's potential, but right now it's still a tiny player in a massive market. India sold about$100 million worth of toys to Americans last year. China, on the other hand, sold$11 billion worth.

17:35And Vietnam,$3 billion. Still, as Trump's tariffs push companies like Learning Resources to pivot away from China, India's share of the toy market is growing. But China still dominates the entire toy-making industry. I saw this in Vietnam. Most of the raw materials used to make toys still come from China. So does most of the investments and expertise. Amitap Karbanda from Sunlord says he'd like to see more of that Chinese capital and influence in India. To be the best, we have to learn from the best. And right now China is the best in this. But thanks to deep-rooted tensions between India and China, it's hard to develop ties to Chinese entrepreneurs and to Chinese capital.

18:19Amitabh says that's forcing entrepreneurs like him to come up with their own uniquely Indian solutions. At Sun Lord's plant outside New Delhi, Amitabh shows me one particularly expensive pain point for toy makers. This is a two-head laser cutting machine with a overhead camera. This is an elephant being cut. There you see the ears, the tail. This is the body of the elephant. Elephant ears and trunks have been stamped onto the gray plush fabric. A red laser beam cuts the fabric, leaving a thin trail of smoke. Machines like this laser cutter cost the kind of money that few Indian factory owners have.

19:06Amitabh's solution is to start a joint venture with two of his biggest competitors. One plus one normally, I mean, in mathematics it translates to two. Tarun Chitwani owns a toy factory just up the road from Sun Lord's facility. But in terms of manufacturing activities and all that, one plus one translates to eleven. Tarun, Amitabh, and a third partner are opening a facility together next door to Tarun's toy factory. It will run 24-7, the first laser-cutting facility of its kind in India. And they're also planning a new factory with more than 300 sewing machines. In the past, these three entrepreneurs would have been rivals.

19:47Not today. We are not competing against each other. Our objective is to get business into India. And as they wait for India to clinch a better deal with Trump that would lower the high tariffs, they have to come up with alternative strategies.

20:15Back in Chicago, learning resources has learned to be flexible, too. Earlier this year, with China facing 145 % tariff, Alana says the company scouted a number of promising partnerships in India and planned to source about 100 new products there. But Trump's tariff on India has changed that calculation. As of today, we're shifting more into Vietnam than we are into India because there's no long-term certainty being given to us by the administration. We would really love to manufacture there in broader scale, But economically, it doesn't make sense for me to manufacture in a location where it is going to be more expensive than manufacturing in another location where I can have equal quality.

21:00I asked Alana about those yoga balls that were rushed out from Amitabh's factory over the summer. She says the company has enough stock for Christmas and the holidays and perhaps a little more to stretch out inventory into 2026. And after that? Tell me what the tariffs are and I can tell you where I'll make it. But I really can't answer that question unless I know what my costs are going to be.

21:30This is the Big Tech Asia from Bloomberg News. I'm Wan Ha. This was the second episode in our series following an American toy maker as it navigates the uncertainty of tariffs. Join us next time as we go to Vernon Hills outside Chicago to explore the final chapter. If you liked the episode, be sure to subscribe at Bloomberg.com slash podcast offer. Leave a review and even better, tell a friend. It really makes a difference. Thanks for listening. See you next time.