US Tariff Whiplash Pushed Toy Factory In China To Brink Of Collapse
Trump-Xi summit in Beijing this week offers hope; Tariff truce gives company a second chance, if extended.
Shanghai : Had the United States kept tariffs on Chinese imports at triple digits for just one more day last year, Huntar Company would have collapsed, said David Cheung, who runs the family-owned toy maker with his brother Jason.
When Washington and Beijing reached a trade truce in Geneva on May 12 last year, rolling back the most-punishing levies, Huntar's production moulds were about to clear Chinese customs as the company made a last-ditch bid for survival by moving some production to Vietnam.
The Cheungs called back the shipment as soon as they heard the news, realising only later the firm's "11th hour" decision had saved their business.
Allowing the moulds to cross the border would have forced Huntar to install the equipment in Vietnam or return the tools to China through time-consuming customs procedures. Either scenario would have delayed output by the equivalent of two production cycles - costing the firm vital cash flow.
"That one day would have changed everything," said Cheung. "We were very, very lucky."
Huntar's dramatic turn of fate shows how damaging the tit-for-tat tariff war was for businesses - and how disruptive further decoupling could be.
Companies like Huntar, which employs 400 to 500 workers in the southern city of Shaoguan making educational toys bound for retailers including Walmart and Target hope Trump's meetings with his counterpart Xi Jinping in Beijing this week could lead to more stable ties.
Most analysts say a tariff truce extension is likely, citing Beijing's grip on rare earths production - vital for U.S. industry, including defence firms - which China successfully used as leverage in trade negotiations last year.
China's export curbs were "an important reminder that economic interdependence cuts both ways," said Neil Shearing, chief economist at Capital Economics.
"President Trump discovered that the U.S. did not, in fact, 'hold all the cards'."
But, he added, attempts to stabilise the relationship did not address the underlying cause of their tensions, namely China's $1.2 trillion trade surplus and the U.S. dependence on Chinese imports.
Washington has accused Beijing of mercantilism - the practice of boosting exports and restraining imports as a way to advance a country's wealth and power - while China has said the U.S. is trying to contain its rise.
"It is a negative feedback loop: geopolitics worsen imbalances, and imbalances worsen geopolitical tensions."
HUNTAR'S ROOTS LIE IN U.S.-CHINA DIFFERENCES
Ironically, Huntar may have never existed if China and the U.S. were not so starkly different in the first place.
Cheung's father escaped Communist mainland China by swimming across a river into then British-controlled Hong Kong. Drawn by U.S. freedoms he moved to California in 1978.
He worked as a cleaner in San Francisco and sold clothes and furniture at a flea market for extra income, eventually earning enough to set up the company that later moved into toy making and is now run by his two sons.
The Cheungs followed the 'American dream' until, like many U.S. manufacturers, they ended up producing in China. In Huntar's industry alone, China makes 80% of what the U.S. buys, according to trade group The Toy Association.
Given the dependencies, Cheung expects U.S.-China tensions to continue to put pressure on supply chains, regardless of the outcome of the summit.
Wholesale buyers in the U.S. still push for alternative production bases, even as most acknowledge the need "to keep as much in China as possible because that's where we have the infrastructure. That's where everything is, frankly, better manufactured," Cheung said.
"There's always this political cloud hanging over their heads where they don't want to be in the same position that they were in a year ago."
Huntar works with a Vietnamese partner on some products, but any renewed push to relocate is complicated by sourcing costs for plastics rising more than 40% since U.S.-Israeli military strikes on Iran disrupted the supply of oil and derivative products.
But steady tariffs mean Huntar lives to fight another day.
“I can't hope for tariff rates to go down. That's a fool's dream,” he said. “I just hope they remain stable.”
