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  • There are millions of toy microscopes like this one in the U.S.

  • They're made in this factory in China.

  • Here is our flagship products' assembly line.

  • We produce more than 30 million pieces.

  • This microscope is part of a list of goods that were spared from new tariffs this Christmas as China and the U.S. have agreed to a limited trade deal.

  • But months of trade war have already transformed the way Johnny sees company operates.

  • When the tariff kicks in, the whole cost of the product will be much higher than before.

  • For months, Johnny worried that the retail price for one of the higher-end microscopes could go up from $70 to $90.

  • So to keep the price down, he took action to cut production costs.

  • The microscope lens is now made with plastic instead of glass; and what used to be a painted metal base is now white plastic, and the toy has fewer screws.

  • In other words, American consumers may now buy a lower-quality product for the same price.

  • The trade war pushes us to be more efficient.

  • If the tariff kicks in, we can still maintain a certain profit.

  • And if the tariff doesn't kick in, we will have more margins.

  • Johnny's company is one of thousands of factories in Southern China manufacturing toys that are exported to the U.S.

  • We traveled to China's toy capital just days before the U.S. and China announced a limited trade deal to understand the impact of a trade war on local manufacturers.

  • American toy makers and retailers come here to either buy ready-made toys in bulk or get custom-design toys produced then shipped to the U.S.

  • This is baby toys.

  • It's animal toys.

  • Truck toys.

  • Barbie toys.

  • This is bubble soap.

  • We have many, many kinds of toys.

  • Tony Chen connects American toy companies to Chinese manufacturers.

  • My favorite toys are electronic toys like drones with cameras.

  • Anything has more electronics, make it cool, I like it.

  • He says some of his biggest customers are U.S.-based Amazon toy sellers.

  • He says business has been strong in the past few years.

  • I can make money from everything.

  • But when trade tensions rose, the mood amongst Chinese manufacturers shifted.

  • When the news come, they're not sure what would come to us.

  • So, most of them is watching, is waiting and waiting to see their customer reaction.

  • Hasbro said retailers canceled direct orders of toys from China, so the company had to import and pay for shipping and warehousing the toys, while Mattel's CEO said during an earnings call that the company could raise prices to minimize the impact of tariffs.

  • Tony said some of his clients increased their orders and have been stockpiling toys in advance of any tariff increases.

  • This particular strategy kept manufactures in toy city very busy ahead of the Christmas season.

  • October is pretty busy.

  • One people need to do three people's work.

  • These strategies aren't foolproof.

  • For instance, Hasbro pointed to trade tensions with China for its tumbling share price.

  • We reached out to Hasbro and Mattel, but they didn't respond to our questions for this story.

  • The U.S. final consumer, they hope to get a good quality and a good price.

  • The trade war will stop them to get that.

  • With Chinese manufacturers supplying about 85 percent of all toys sold in the U.S, some U.S. retailers say they expect their suppliers to find ways to keep prices as low as possible, so pressure's on manufacturers like Johnny.

  • We definitely do not want to raise the prices.

  • We design and produce the whole microscope ourselves.

  • We can make some minor adjustment and make it more efficient.

  • Besides using cheaper components to build each microscope.

  • In case a tariff kicks in.

  • The company reduced the number of accessories and the size of the packaging.

  • The result: Eastcolight now has a wider range of microscopes than before.

  • Small and big, orange and blue, ones that look very futuristic, some with a lot of functions, and others with just the bare minimum.

  • The idea is that in the event of future tariff hikes, Johnny can now sell different models depending on the amount of any new tax so that the price would always stay the same.

  • If the tariff kicks in, we're ready for the changes.

  • We can reduce the price around 5 to 10 percent.

  • As trade tensions are running high, Johnny also took another extreme measure.

  • He invested hundreds of thousands of dollars to install 90 robots and automate the factory.

  • We used to have 1,000 employees, and right now we only need 300 because we use robotic arms to replace more than half of the employees.

  • Johnny's strategy is also to seek new customers.

  • His company is now planning to sell toys once created for American kids to Chinese children, a brand new market for his company with potentially millions of customers.

  • They used to have a one-child policy and now they can have two kids, so we're expecting the market will be a lot greater than before.

  • It's still early to know if the U.S. and China will reach a comprehensive deal that will put an end to their trade dispute.

  • For now, their limited trade deal rolls back existing tariffs and cancels new ones that would have directly hit China's toy-making hub.

  • It's good news for Chinese manufacturers who say their exports to the U.S. had taken a hit, all while the economy at home cools.

  • For some, the trade war has turned out to be a motivation to innovate.

  • In the U.S., the price of these toys likely won't change too much, but the way they look and feel when kids take them out of the box just won't be the same.

  • I believe the tariff is an opportunity.

  • There are always improvement we can make.

There are millions of toy microscopes like this one in the U.S.

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How Tariff Tensions Transformed China's Toy Factories | WSJ

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    Fibby posted on 2020/01/07
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