Over the last few weeks, my Cato colleagues and I have extensively documented the harms that the Trump administration’s haphazard trade policy is imposing on millions of Americans—both consumers facing higher retail prices and businesses hit with higher costs. Behind the topline numbers on things like supply chains, prices, and GDP, however, lie real people who are experiencing real hardships due to decisions made in Washington, all on the basis of a flawed understanding (at best) of trade and the modern US economy.
One of those stories is that of Rick Woldenberg, CEO of Learning Resources, a Chicago-based, family-owned small business that produces educational toys for young children. Last week, I sat down with Rick to talk about the impact that the Trump administration’s tariffs—particularly those on China, where Learning Resources manufactures 60 percent of its products—have had on his business and the costs these indiscriminate taxes will continue to inflict even if they are reduced in the coming weeks.
A previous blog highlighted that the Learning Resource’s tariff liability for 2025 would skyrocket this year, thus forcing the company to freeze US hiring, cut discretionary expenses, and cancel marketing campaigns and new products. But our conversation hit on many other important points about the harms of tariffs for US businesses, the uncertainty they’ve injected into the US economy, and the disconnect between the president’s trade strategy and the realities of modern American manufacturing. Below are some key excerpts in this regard, and you can watch the full interview here.
On why the company manufactures in China, where they’ve been doing business since the late 1980s:
Why China? I would tell you that we followed the incentives of American law and the American economy. To compete in the most competitive consumer market in the world, United States, we have to have world best cost. So we went looking for a place where we could make the greatest variety of high-quality products at the lowest possible cost, so that we could expand as much as possible here.
And China was the perfect place to do that. China was a great opportunity. What I very often tell people is: but for China, we would not exist. So if you value what we do, you have to tip the hat to China because we’re able to offer our products at a very low competitive price, which allows schools to buy them, allows families to buy them.
Why it’s simply impossible for his company to manufacture all its products in the United States:
We can make 100 percent of our products here in the US, [it’s] just it would cost three to ten times as much. The tooling costs would be astronomical, so we would be much smaller, and the available market to us would be microscopic. So we wouldn’t be able to employ the same number of people. We wouldn’t be able to bring out the wide range of new products that we bring out, all because the market would have just basically collapsed.
We’ve looked probably on and off over ten years for manufacturing partners here at various times. There have been incentives .… We can print here and we can assemble here. But we’ve not found a way to manufacture here. In present circumstances, we’ve dug even deeper. And so we’ve looked at technology or automation solutions to see what percentage of our product line we could make here, looking at farms of 3D printers and so on (which I am not aware exist) for the kinds of things that we do. And we’ve determined that that’s not viable. You can buy a gigantic 3D printer and print up parts to go in an airplane … but there’s no way we’ve identified where we can make a competitive product that sells for $20, through automation or technology. To me, it’s a closed door.
On the complexity of Learning Resources’ multi-region supply chain and the astronomical costs associated with shifting parts of it to other countries:
We’ve been working since I got here in 1990 to build out a portfolio of fantastic long-term partners .… It involves a lot of developmental growth on both sides. Both companies have to grow, because the sophistication of this market, which is uber competitive, is incredibly high. The finish requirements are high, the quality control standards are high, the safety standards are high. And so it’s taken a lot of caretaking and hard work to get there. And it’s been done over decades.
Right now, because I think [manufacturing in] China’s over at the tariff rates we’re at, we’re moving everything. And that’s incomprehensibly complex, involving daily crises. And it’s darned expensive. Just to put it in simple terms, we had three years ago about 2,900 items that we made in China. We estimated this week that we have been paying between $4,500 and $7,000 per item to move it—simply the frictional costs of moving it from point A to point B. We have in that period of time moved about 460 items.
So you’re talking about an expense, a total expense of, I don’t know, $10, $15, $20 million just to relocate the supply chain, just to relocate it. It’s not to get lower costs. It’s not to be more efficient. It’s not to be better. It probably will have higher costs and be worse. It’ll be slower. It’ll be less efficient. [Our alternate partners] probably can’t do everything that we want to do before, and we’ll still have to shell out $10, $15 or $20 million.
On the immediate costs that “Liberation Day” tariffs imposed on Learning Resources, and why cancelling contracts with foreign partners was not possible:
We were assessed the tariffs on April 2nd to April 9th, where they skyrocketed [in regards to] China from 20 to 145 percent. So, of course, like everybody else, we immediately put out a stop order to our forwarders and said, “stop all shipments.” Six containers were pulled from boats.
But apparently 19 [other containers] were too far along, and they were shipped. [Those] 19 containers [have] about $1 million of merchandise on [them], and [they’re] likely to produce over $1 million of tariffs. So the cost of that product, because it missed by one day, doubled in price.
…
We contract 45 days to one year out. … And I think a very important thing to keep in mind is these are not their products. These are our products. We own the intellectual property; it has our name on it. It is only available from us because they are our products. We just outsource to someone else to make them.
Essentially, our factories are performing a service for us. So, when they perform the service, we owe them the money, sort of like when you hire a lawyer and they charge you for their time. Once time has elapsed, you owe them for the time. We can cancel the order all we want, but it’s a contract problem at that point. They’ve relied on our purchase orders and we have to work that out financially. You can’t just wiggle your nose and make [the product] disappear.
On why Learning Resources can’t possibly absorb the tariff costs completely:
We have capital in our company. … But, at the end of the day, it’s mathematically impossible at these levels to absorb [the costs]. … If you look at our 2025 plan, if you hold steady the base pay that people collect from our company, their bi-weekly check, and you say that’s the only expense in our company that we will pay this year, we will pay nothing else. We will not pay for health insurance, postage. We will not pay for rent, will not pay for electricity. We will not pay for anything except base pay. We would have to slice our profit, the net profit of the company, very severely to cover the tariffs, if we had no other expenses besides the employee expenses.
Where am I supposed to hide this? Just by way of illustration, last year, cash expenditures, we spent $2.3 million on duties and tariffs. This year, if I use my 2025 plan as the basis of the calculation … we project, the cost goes to $100.2 million, which is 44 times last year.
So, who in their right mind thinks that anybody operates a business in a hypercompetitive market like this and can take a 44x increase in tariffs and not be in immediate financial crisis?
On how the tariffs’ lack of process and slapdash rollout has made it impossible for the company to plan for the future:
One of the things that characterizes this crisis is no advance warning. No forecasting of what they’re going to do, everything’s like the big revealed the last moment. So when we made these decisions [about ordering products in advance of Trump’s inauguration on January 21], we were totally in the dark. We had to guess and we didn’t really have much time because we thought the stuff had to physically be in the United States before inauguration.
So that was the goal. … In any event, we can only bring in so much. We made a little bit of a dent. But we couldn’t transform things. When January 20th came along and the tariffs started to get announced, [the rate on China] went from 10 to 20 percent pretty quickly. And that was a major blow to us. And we began to make plans on how to accommodate that.
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If you could just tell me what the rules are going to be, and if you could assure me that the rules would last more than 24 hours, or would be announced more than 24 hours in advance, that would make it a little easier for me to answer these questions. Tell me how I’m supposed to set my pricing. …
Because the tariffs on Chinese goods are so high, importing from China is something you do only under desperation conditions. So we’re bringing very little from China now. But that’s where 60 percent of our product comes from, so we have to move it. Where is it going to go to, and when can you get it? And what will your new cost be? And can you actually make the same thing there? We have new products that are being … canceled or significantly delayed or changing their price or something else. Everything becomes an emergency and it just gets turned upside down. Everything costs money. So, like we’re just burning money to kind of just stay where we’re at, if we’re lucky. It’s not a way to build a business.
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For two years, I’d been working on building a new building. We wanted to build a 667,000 square foot warehouse with state-of-the-art technology in it. We had built a new warehouse four years before, and we want to do another one. I worked for four years on this project. We were looking at our fourth site. We were basically at the finish line on April 2nd.
I was in a meeting. I get out of the meeting, and I hear about how “liberated” I become. I picked up the phone, I called my broker, and I said,” the deal’s dead.” Three days later, I called him back and I said, “I can’t foresee circumstances arising in the year 2025 where my crystal ball will work sufficiently for me to resurrect this deal. I can’t come back to it as much as this breaks my heart.” That was that was a deal that had a lot of zeroes on the end of it. That is a clear and present and actual example of how this is killing investment.
On how this and other tariff uncertainty have prevented Learning Resources from making costly decisions on where to move its supply chains:
You’re really asking two questions. How long is it going to take [to move the supply chain to other countries]? And is there a gotcha coming? The answer to how long it’s going to take is we don’t know. We’re working on that. It’s probably going to take longer than we think. And one of the reasons is just kind of rounding the stuff and moving it out, but also the decision of where to move it to. Like, we’ve 2,400 products in China. That is no small undertaking, and there is no place we can send 2,400 products .… So it’s ornately complex. The tools will probably end up in numerous countries and at numerous factories because none of them can handle all of it.
And in terms of like how great of an idea is this? Is this another one of those master plans, like 40 percent tariffs? Who knows? I’ve been trained in this exercise to expect the worst. So whatever we do, we’re probably going to do it wrong. The easiest place for us to move it is from China to Vietnam. And I heard comforting words coming out of India today where J.D. Vance was disparaging Vietnam as a transit point for Chinese goods. You know, it sort of feels like the US government’s got it out for us, and they just won’t be satisfied until they kill us.
We have to go someplace. And these are our products. They belong to us. We own the intellectual property. All we really want to do is find a place where they let us melt the plastic pellets into shapes and then bring them someplace to sell.
On what will happen to the prices of the products that Learning Resources—and other companies in a similar situation—sell in the US:
If you’re paying 50 percent of your product costs in taxes (in the form of tariffs), you pay that the day it arrives in the country and then what if you sell a product six months later? You have to carry that as a borrowing for six months, and that can really mount.
That’s one of the reasons why companies are feeling a strong need to raise prices now, because they pretty much have to raise the money to finance paying the taxes, because the taxes are paid first. Income taxes are paid after you make the money. But tariffs are an asset tax. And so you pay them basically to go into business.
So we have to raise the prices sooner than later because we need to accumulate that money so we can spend it on tariffs. That completely screws up the cash flow of your business.
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This plan is a mass self-impoverishment plan. If I have to raise my prices 50 percent, 70 percent, or whatever ridiculous number it is, what I tell people is, “You’re going to be paying that much more to buy exactly the same thing. And this is going to happen across a wide swath of things that you want to buy: shoes, sweaters, sunglasses, power tools, you name it.”
The one thing I can promise you will not go up is your salary. So you have the same amount of money, just everything will cost 50 percent more. What does that mean? That means that your standard of living just dropped because you can’t afford to buy what you could buy the day before. It’s an impoverishing policy and it’s so obvious.
On how Rick, once a Republican donor, now sees the party and politics more broadly:
I’m a political nothing now. In 2010, when there was a big kick to regulate the toy industry like we made drugs … the Democrats were at that time completely … indifferent to the impact it had on our organization, and companies in that era were “bad”. The Republicans were highly sensitive to the impact of these rules on us. And so they became allies in fighting to basically stay alive.
Today, scroll forward, I feel that the current administration is indifferent to the impact on us and almost detached from reality. And if you’ve heard things like, Americans screwing in tiny little screws or buying bubbles from China, there’s a detachment from reality that is profoundly disturbing. And the feedback loop of lower stock prices and every single American businessman screaming from the top of the mountain top, “You’re killing me!” is falling on deaf ears. It’s not the same party that it was in 2010, and I don’t know who understands business anymore.
On why Learning Resources filed a lawsuit against the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose sweeping tariffs:
I think at the end of the day, when you really look at what we’re doing, we’re standing up for ourselves. So, there is massive legislation, there’s a massive, invocation of these taxes that directly threaten what we do. We have 500 employees with 500 families who depend on our company for their well-being. And there’s, like, millions of children who use their products, and we have thousands of dealers all over the world. We care about this community of people that depend on us. And, you know, darn it, we’re not going down without a fight. We’re going to stand up for ourselves and our rights, and we’re going to insist that this question be litigated and resolved.
You can watch the full interview here.