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How Tariff Tensions Transformed China鈥檚 Toy Factories | WSJ - YouTube
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- [Narrator] There are
millions of toy microscopes
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like this one in the US.
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They're made in this factory in China.
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- Here's our flagship
product's assembly line.
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We produce more than 30 million pieces.
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- [Narrator] This microscope
is part of a list of goods
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that were spared from new
tariffs this Christmas
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as China and the US have
agreed to a limited trade deal.
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But months of trade war
have already transformed
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the way Johnny Sze's company operates.
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- When the tariff kicks in,
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the whole cost of the product
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will be much higher than before.
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- [Narrator] For months, Johnny worried
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that the retail price for one
of the higher-end microscopes
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could go up from 70 to $90.
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So to keep the price down,
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he took action to cut production costs.
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The microscope lens is
now made with plastic
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instead of glass.
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what used to be a painted metal
base is now white plastic,
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and the toy has fewer screws.
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In other words, American
consumers may now buy
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a lower-quality product
for the same price.
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- The trade war push us
to be more efficient.
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If the tariff kicks in,
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we can still maintain a certain profit.
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And if the tariff doesn't kick in,
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we will have more margins.
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- [Narrator] Johnny's
company is one of thousands
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of factories in Southern China
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manufacturing toys that
are exported to the US.
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We traveled to China's toy capital
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just days before the
US and China announced
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a limited trade deal
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to understand the impact of a trade war
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on local manufacturers.
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American toy makers
and retailers come here
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to either buy ready-made toys in bulk
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or get custom-design toys
produced then shipped to the US.
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- This is baby toys.
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It's animal toys.
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Truck toys.
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Barbie toys.
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This is bubble soap.
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We have many, many kind of toys.
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- [Narrator] Tony Chen
connects American toy companies
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to Chinese manufacturers.
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- My favorite toys is the electronic toys
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like drones with camera.
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Anything has more electronics,
make it cool, I like it.
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(Tony laughs)
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- [Narrator] He says some
of his biggest customers
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are US-based Amazon toy sellers.
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He says business has been
strong in the past few years.
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- I get my money from everything.
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- [Narrator] But when trade tensions rose,
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the mood amongst Chinese
manufacturers shifted.
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- When the news come,
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they're not sure what would come to us.
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So most of them is watching,
is waiting and waiting
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to see their customer reaction.
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- [Narrator] Hasbro
said retailers canceled
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direct orders of toys from China,
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so the company had to import
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and pay for shipping and
warehousing the toys,
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while Mattel's CEO said
during an earnings call
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that the company could raise prices
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to minimize the impact of tariffs.
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(Tony speaking in foreign language)
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- [Narrator] Tony said some of his clients
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increased their orders and
have been stockpiling toys
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in advance of any tariff increases.
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This particular strategy
kept manufactures in toy city
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very busy ahead of the Christmas season.
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- October is pretty busy.
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One people need to do three people's work.
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- [Narrator] These
strategies aren't fool-proof.
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For instance, Hasbro pointed
to trade tensions with China
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for its tumbling share price.
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We reached out to Hasbro and Mattel
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but they didn't respond to
our questions for this story.
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- The US final consumer,
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they hope to get a good
quality and a good price.
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The trade war will stop them to get that.
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- [Narrator] With Chinese manufacturers
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supplying about 85% of
all toys sold in the US,
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some US retailers say they
expect their suppliers
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to find ways to keep
prices as low as possible,
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so pressure's on
manufacturers like Johnny.
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- We definitely do not
want to raise the prices.
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We design and produce the
whole microscope ourselves.
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We can make some minor adjustment
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and make it more efficient.
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- [Narrator] Besides
using cheaper components
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to build each microscope.
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- In case a tariff kicks in.
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- [Narrator] The company reduced
the number of accessories
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and the size of the packaging.
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The result: Eastcolight now has
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a wider range of microscopes than before.
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Small and big, orange and blue,
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ones that look very futuristic,
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some with a lot of functions
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and others with just the bare minimum.
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The idea is that in the
event of future tariff hikes,
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Johnny can now sell different models
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depending on the amount of any new tax
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so that the price would
always stay the same.
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- If the tariff kicks in,
we're ready for the changes.
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We can reduce the price
around five to 10%.
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- [Narrator] As trade
tensions are running high,
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Johnny also took another extreme measure.
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He invested hundreds
of thousands of dollars
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to install 90 robots and
automate the factory.
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- We used to have 1,000 employees,
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and right now we only need 300
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because we use robotic arms
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to replace more than
half of the employees.
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- [Narrator] Johnny's strategy
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is also to seek new customers.
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His company is now planning to sell
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toys once created for American
kids to Chinese children,
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a brand new market for his company
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with potentially millions of customers.
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- They used to have a one-child policy
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and now they can have two kids,
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so we're expecting the market will be
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a lot greater than before.
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- [Narrator] It's still early to know
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if the US and China will
reach a comprehensive deal
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that will put an end
to their trade dispute.
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For now, their limited trade deal
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rolls back existing tariffs
and cancels new ones
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that would have directly
hit China's toy-making hub.
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It's good news for Chinese manufacturers
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who say their exports to
the US had taken a hit,
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all while the economy at home cools.
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For some, the trade war
has turned out to be
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a motivation to innovate.
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In the US, the price of these toys
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likely won't change too much,
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but the way they look and feel
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when kids take them out of the box
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just won't be the same.
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- I believe the tariff is an opportunity.
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There are always improvement we can make.
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(gentle music)
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