Huntar chief executive officer Jason Cheung - Reuters
SAN FRANCISCO: The emails started pouring in on April 9, the day President Donald Trump’s 145% tariff on Chinese imports took effect.
Clients were cancelling orders for toys from Huntar Company Inc’s factory in Guangdong Province, China.
But Huntar chief executive officer Jason Cheung, 45, had already halted production at the 600,000 sq ft facility in Shaoguan.
He saw the tariff for what it was – an existential threat to his company, which manufactures educational toys bound for the shelves of Walmart and Target, like Learning Resources Inc’s Numberblocks, which help teach kids math.
“I needed to start saving money as soon as possible,” Cheung said.
Since then, he has cut production by 60% to 70%, laid off a third of the factory’s 400 Chinese workers and reduced hours and wages to those still employed.
Now, he’s pursuing a frantic, long-shot effort to move his operation to Vietnam before the company his dad founded 42 years ago runs out of money.
He figures he has about a month.
Huntar’s plight typifies a crisis facing countless factories in China, where about 80% of toys sold in the United States are manufactured, according to trade group the Toy Association.
New orders have fallen sharply amid a brutal trade war with the United States that threatens to devastate the sector in both countries.
Huntar is also unique in one key way – based in the United States, it straddles both sides of the trade war.
On paper, Cheung is Trump’s bogeyman, the Chinese factory owner taking American jobs.
But he’s also the US small business owner tariffs were meant to protect.
He’s the American son of a Chinese immigrant, running a second-generation family-owned business that employs 15 people in the United States, people who would lose their jobs if Huntar falters.
Trump has said tariffs will incentivise companies to reshore manufacturing, or, at least, drive it out of China.
Huntar illustrates why economists said that’s unlikely – a dearth of facilities and workers with toy making expertise in other countries, heavy equipment that’s hard to move and would cost millions of dollars to replace and, most acutely, no time to solve those hurdles before coffers run dry.
More likely, factories like Cheung’s will simply shut down, a prospect that drove Beijing to the negotiating table with US officials in Geneva over the weekend, sources familiar with the Chinese government’s thinking said.
Realistically, China cannot replace US market demand for product categories like toys, furniture and textiles, which are already feeling the impact of tariffs, one of the officials said.
As trade talks began, Trump signalled he was open to cutting China tariffs to 80%.
That wouldn’t help Huntar, Cheung said, noting that any tariff rate over about 50% would make survival difficult.
On a practical level, there’s no difference between 80% and the 145% tariffs he’s currently facing.
Crises have hit Huntar before, Cheung said, but not like this.
The 2008 recession brought a steady slowdown, one he could plan around.
And the Covid pandemic dealt a blow, but his volume of production remained high enough to keep him afloat through a temporary slump.
“Our manufacturing business essentially halted overnight.
“And now I refresh my tariff Google search five or six times a day, hoping something’s changed,” said Cheung.
Huntar manufactures toys for US, Canadian and European sellers, like Learning Resources Inc and Play-a-Maze, which distribute them to retailers or sell directly to consumers.
It also makes its own educational toys under its Popular Playthings brand, which it has had to stop shipping to the United States, costing the company hundreds of thousands of dollars so far, Cheung estimated.
American-owned factories in China are uncommon, as Chinese law makes it difficult and costly for foreign entities to own them, said attorney Dan Harris, a partner at Harris Sliwoski, who focuses on international manufacturing law.
But Huntar has roots in a business Cheung’s father set up in 1983, a few years after escaping communist China and settling in California’s Bay Area.
Cheung grew up in San Francisco’s Inner Richmond district, he said, in a small house whose broken door you could simply kick open.
His father would sell clothes and furniture at a flea market to augment his janitor’s wages, with Cheung tagging along, bored to tears. As the operation matured, Cheung’s father set up a factory in China, to exert more control over quality.
Cheung, who joined the company in 2004, still uses the desk his father set up in their living room decades ago.
“We think maybe it’s lucky or something,” he said. The last few weeks have been anything but lucky.
The factory is sitting on US$750,000 in cancelled shipments – value Cheung couldn’t fully recover even if the trade war ended, because his shipping costs would surely spike as factories raced to clear backlogs.
That’s what happened after Covid, Cheung recalled, when shipping costs ballooned from US$2,000 per container to more than US$20,000. — Reuters
