A toymaker who got tariffed

0:01Noel King:Late last week, the Supreme Court ruled that President Trump's tariffs are unconstitutional. The court said when he implemented them, he exceeded his authority. Last night, in his State of the Union, the president had a chance to defend himself. One of the primary reasons for our country's stunning economic turnaround, the biggest in history, where the Dow Jones broke 50 ,000 four years ahead of schedule. The Dow. The Dow right now. And the S &P hit 7 ,000, where it wasn't supposed to do it for many years, were tariffs. I used these tariffs, took in hundreds of billions of dollars to make great deals for our country, both economically and on a national security basis.

0:46Everything was working well.

0:48Noel King:Everything wasn't working well, but USA did learn some important lessons from the tariffs. And the story of those and of some of the people who took Trump to court and won is coming up on Today Explained. I got in the water in the very early morning before the sun had risen and the water was pitch black. I started swimming and I felt the water hollowing out around me and felt like something really big was swimming below. I'm Phoebe Judge and this is Love. A show about the surprising things that love can make us do. More than 100 episodes, available now on This Is Love.

1:37This is Today Explained.

1:39Noel King:Stephen Woldenberg is the Senior Vice President of Sales at Learning Resources, a family company. Learning Resources was founded by my grandmother in 1984. We make educational toys. Jack has five big dinosaurs. He can make them move. So we serve the markets ranging from the preschool market to schools. We also actually make pet toys, too. Thank you, Spot. Most of our products are manufactured overseas. So we make products in China, Vietnam, India, Taiwan, Korea, as well as a small amount of products here in the United States. We make hands-on learning products. So they range from anything from early childhood products to help children master their fine motor or gross motor skills, to imaginative play products like our pretend and play cash register.

2:31My cash register is a calculator. To products that inspire a love of learning of STEM. This Microsoft shows so many details. Science to coding robots. Make coding magic with magic coders. And, of course, teacher and classroom resources as well.

2:53Noel King:Tell me about your grandma who started this business. That's cool. Yeah, so she started the business in 1984. Definitely did not consider this or expect it to be a full-time job. So she hired her tennis partner to help her answer the phones. And one thing led to another, and over time, the business expanded. So I really grew up in the education and school markets. And over time, we found that our products were being used as toys. And we went into toy shops and saw that our products were on shelf there. And lo and behold, here we are today selling to mass market retailers and one of the leading brands in educational toys in the country.

3:28Noel King:All right. So the reason that you and I are talking today is that you and your family on behalf of the company sued the Trump administration over the tariffs. Yes. We sued the administration over tariffs because we did not think that IEPA, IEPA is the International Emergency Economics Powers Act provided for tariffs. And so we wanted to challenge it in court. And ultimately, the case made it all the way up to the Supreme Court. We will hear argument this morning in case 24-12-87, Learning Resources versus Trump and the consolidated case. And on Friday, the Supreme Court agreed with our position and ruled in our favor.

4:07It was a landmark victory, and we're super excited about it and feel quite vindicated and gratified.

4:14Noel King:What was your reaction and the family's reaction when you won? Did everyone go out for drinks? Like, how did you guys respond? It was surreal. We were not expecting a ruling on Friday. So I was actually in a one-on-one with my father, who's the CEO. And at about 9.02, 9.03, I was on the SCOTUS blog website. refreshing like everybody else does when they're trying to figure out what ruling is going to come down today. And I saw that it was about tariffs. And so I interrupted him. I said, it's tariffs, it's tariffs. We won. And so from there, it was sort of a whirlwind. It's been a blur since Friday.

4:49But one of the most gratifying parts of the ruling of our case was the reinforcement of rule of law in our country.

4:56Noel King:How much did you all have to pay in tariffs since they were announced about a year ago? So it's actually a more difficult question to answer than you might think, but we've paid in excess of$10 million, and the payments were still coming due up until Friday. Wow. In 2024, we paid just over$2 million in tariffs. Those were Section 301 tariffs that were imposed in the first Trump administration. Those continued into 2025. It was the incremental that was really disruptive. When a manufacturer imports product and arrives in the U.S., the manufacturer, the importer of record, is responsible for paying the tariff.

5:36These tariff rates ranged all the way up to 145 % at its peak, and that's quite disruptive. No company can afford to pay 145 % tariff and still sell a product at a price where a consumer would actually buy it. And so as these tariff rates spiked, it became increasingly more difficult to plan and execute on our business.

5:58Noel King:Okay, so the sort of bargain that you would have had to strike, as I understand it, is that in order to sell in the United States, you would have had to be charging your customers, what, like double for a toy, triple for a toy? At its peak, we were looking down the barrel at having to do that. So that was one of the challenges of tariffs all along, is in order to fund the tax bill, which tariffs are a tax, in order to fund the tax bill, we had to cut expenses elsewhere. We had to cut marketing expenses, investments. We had to look to slow hiring. Wow. All to fund the tariff tax bill that we had, because like so many businesses, we crave certainty.

6:40And so when we didn't have certainty into what our tax bill was going to look like, it became much more difficult to make investment decisions. It became much more difficult for us to move forward on investing in innovation, which is really what drives our business. These are all things that were heavily disrupted in addition to resource allocation internally. So coming into 2025, we were already working on resourcing our supply chain. The president was very clear on the campaign trail he was going to impose tariffs. You're talking about 60 % tariffs on Chinese goods. Is that in the cards? No, I would say maybe it's going to be more than that.

7:13We didn't think it would get that far. We felt like it would settle in a little below that. But nevertheless, we took him seriously, not his word, and we were beginning to look at resourcing our supply chain. So we already had people working on this project. However, after tariff rates spiked 145 % for goods manufactured in China, we really had to double down. It was, you know, make or break for us.

7:36Noel King:When President Trump introduced tariffs, he was clear in a number of ways about what he wanted. And maybe the strongest argument that he made, according to a lot of people who like the president's policies, was I want to encourage businesses to move manufacturing to the United States. If you're going to manufacture, do it in America. Did you ever consider doing that? Was that ever a possibility? We've looked into it. it really isn't possible in our industry at a price where a consumer would buy the product. And so when we've looked to manufacture products in the U.S. before, we've sent items out for quotes, and they typically come back with prices that range from 10 to 20 times higher than what we would pay.

8:19Noel King:10 to 20 times higher? That's correct. 10 to 20 times higher than what we would pay if we manufactured the product overseas. And so we make products that, generally speaking, under$40 for the consumer market. There are products that are above that, but more or less most products are below that. And so it's difficult to imagine that consumers would buy our products at the price we would have to sell them at if we manufactured them in the U.S. And this is confirmed to us because if it was possible, we would see our competitors doing it, and really we're not. All right. So you ended up paying millions of dollars in tariffs.

8:58Noel King:the Supreme Court says this was not legal, does that mean that your business is getting some money back? We expect to. And the administration has been clear several times in court, in writing, that they, and during different arguments at different stages of our case, that they will expect to pay back the tariffs if the Supreme Court ruled in our favor. And so we're going to let the process play out. But we know one thing. It was not difficult for them to take the money. And so we expect they should be able to turn the tubes around and send it right back to us. What does the future look like for your company now?

9:40Well, we're moving forward after the ruling. The government reimposed tariffs over the weekend under a different statute, 10 percent on Friday and then increased it to 15 percent on Saturday. So we didn't expect or anticipate that after the ruling, tariffs would go away. Our general perspective on this is if this is a revenue-raising exercise, they should go to Congress, as the Supreme Court suggested they had to for the tariffs that were overturned over last Friday, and have Congress vote in daylight and allow people in the U.S. to see the decision they have made to raise taxes on Americans. And if it's really a national security concern, they should focus in on the products that are most vital to national security, whether it be chips or cars or whatever it might be.

10:40But don't take down toys in the process.

10:52Noel King:Stephen Woldenberg, he's the SVP at Learning Resources. Coming up, what did the tariffs do to the American economy? The data's in.

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14:51You're listening to Today Explained. Because I'm going to charge you tariffs if you don't. Ben Harris. I'm the vice president and director of economic studies at the Brookings Institution. Prior to this role, I was assistant treasury secretary for economic policy, which also carried the title of chief economist of the U.S. Treasury. All right.

15:10Noel King:When President Trump was elected and it became clear that he planned on implementing tariffs, What were you hearing from responsible economists about what was going to happen to the American economy? So the first thing I would say is that many economists were caught by surprise. The lights on the financial system are flashing yellow. Every part of your life is about to change. None of this makes a whole lot of sense. But I suppose that maybe, you know, since last November, we've become immune or numb to all this insanity. The average tariff rate in the first Trump administration went from about 1.5 percent to about 3 percent, which was a big proportional increase.

15:52But I think there was a bit of a failure of imagination by economists when it came to the second Trump administration, where post-Liberation Day, we saw that average rate jump well over 20 percent. With specific reciprocal tariffs on what he calls the worst offending nations. That's 34 % on China, 20 % for the European Union, likely meaning Americans pay higher prices for electronics, clothing, construction equipment. Even imports from the microstate of Liechtenstein, population 40 ,000, sandwiched in between Switzerland and Austria, will be taxed 37%. The second thing that caught economists by surprise was that the really sharp increase that we just didn't predict in advance didn't have the type of impact that we thought it would have.

16:41My guess is, is that if you told 100 economists that the average tariff rate was going to jump from 3 percent to well over 20 percent, many would have predicted a recession. And that was, in fact, not what we saw.

16:53Noel King:Yeah. And it wasn't just your guess, because I remember covering Liberation Day last year. And it was something close to hysteria. It was like, oh, my God, the American economy is in so much trouble. And then we were all sitting and waiting for the really big trouble for the economy to tank. And we heard in the first half of our show from a small business owner whose business actually faced a ton of trouble. But broadly, the American economy did not tank. What did happen? So we learned a lot of lessons about tariffs. And I think we learned three big lessons about why this increase in tariffs did not tank the U.S.

17:28economy. So the first lesson was that the time that the tariffs pass through to U.S. consumers really matters. So in the first Trump administration, you might remember that the president put in place a tariff on washing machines. When we do this, a lot of manufacturers will be coming to the United States to build washing machines and also solar. Which meant that every American consumer paid about$90 more for every washing machine that they bought. And that pass-through happened really quickly. That was about a 12 % increase, and that stayed there the whole time the tariffs were in place. Data from financial analysis firm Thinknam shows prices of Whirlpool washers creeping up as its stock price slides.

18:08There were also increases on dryers. And dryers, there were no tariffs on that. And so I think the expectation was that same speed of transmission would happen in a second Trump administration. And that, in fact, didn't happen. So importing companies did not pass through the tariff costs to consumers with the same speed. And that may be because companies weren't sure if the tariffs would stick and were waiting to see what happened. Or maybe they thought that U.S. consumers didn't have the wealth and income to handle these tariffs all at once. But for whatever reason, the first lesson we learned was that there was a slow pass through.

18:43The second lesson that we learned is that it also matters what's happening in the rest of the economy. And as you know, the president and Republicans in Congress passed this massive one big beautiful bill. Six or even seven bills. And I said, let's make it one big beautiful bill, my friend. That bill had a lot of stimulus in it at the first couple of years. And so for a middle class family, the extra taxes you were paying in tariffs was roughly offset by the extra tax benefit you were getting from the one big beautiful bill. The third lesson I think we learned was that the expected response from our trading partners isn't always what we think.

19:22And so if I had told a bunch of economists at the beginning of 2025 that the tariff rate was going to shoot up as much as it did, I think we would have expected that our trading partners in Europe and in Asia and elsewhere around the world would react by putting in place additional tariffs on U.S. exports, maybe putting in place quotas, other trade restrictions. That's exactly the opposite of what we saw outside of China. We saw a lot of our trading partners racing to put together these trade frameworks rather rather than putting in place punitive measures against us. So lots of surprises all around.

19:56Noel King:Why was there not the retaliation we expected? So I think we'll learn more after a few years. I think that our trading partners, like domestic economists, were caught off guard by the size of the increases. And they didn't really have plans in place to go ahead and put in place punitive measures. Donald, they point out that even though you're a very smart guy, This is a very dumb thing to do. Indeed, one of the great strengths of this nation is our ability to keep a cool head. We don't intend to give up. We're Australian. Also, the United States has a massive export market. And this is something that President Trump, I think, recognized from the outset.

20:38And we do have a fair amount of leverage over our trading partners. And so it just takes time for them to put in place alternatives to trading with the United States. I think that when 2026 closes and if we get into 2027, we'll probably see more punitive measures and more shifts in trading patterns away from the United States if these tariffs stay in place.

21:00Noel King:If the economy didn't tank, and I feel like this is a question worth asking, does that mean that the tariffs worked, whether the Supreme Court says they're constitutional or not? Did they work? Yeah, so that's a tough question because one would have to ask, why were the tariffs put in place in the first place? And the messaging out of the Trump administration is a little muddled. Sometimes you hear that they put in place tariffs in order to reshore supply chains or to build up American manufacturing. Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.