Learning Resources Inc. (LRI), a US toymaker, is attempting to move production out of China to Vietnam to avoid high US tariffs, but the shift is proving costly and complex, reports K Oanh Ha of Bloomberg. Although Vietnam offers lower tariffs (20% vs. China’s 31% average), it lacks China’s vast manufacturing scale, resulting in 10% to 15% higher production costs for LRI. Furthermore, Vietnamese factories, often Chinese-owned, still rely heavily on imported Chinese components, raising risks of “transshipment” penalties. Oanh Ha writes:
The Dong Phuong toy factory lies in the town of Phu Ly, a two-hour drive south of the Vietnamese capital, Hanoi. But you’d be forgiven for thinking it’s in China. Chinese characters greet visitors on the giant stone sign out front. The gate faces north, and just inside there’s a pond oriented toward the northeast filled with koi fish—feng shui touches intended to bring good energy and luck. And the management is almost entirely Chinese, because the plant is owned by a company that hails from the mainland city of Zhejiang.
For Elana Woldenburg Ruffman, that’s a mixed blessing. She’s the vice president for marketing at Learning Resources Inc., whose educational toys, such as the Code & Go Robot Mouse, Spike the Fine Motor Hedgehog and Kanoodle puzzles, can be found in stores across the US. Learning Resources has long relied on Chinese manufacturers, but Ruffman is trying to move production elsewhere in response to US President Donald Trump’s trade wars.
The fourth-generation family company (Ruffman is a great-granddaughter of the founder) sued Trump over tariffs in April, arguing that only Congress has the authority to set them. Lower courts ruled that the levies were indeed illegal, and the US Supreme Court heard the case on Nov. 5. But Ruffman is hedging her bets. “We must diversify our supply chain to survive,” she says. “We don’t know what the government is going to do. We can’t just sit around and wait.” […]
Vietnam is an obvious alternative to China. Sure, the White House has imposed a levy of 20% on goods made in Vietnam. But that’s still lower than the 31% average tariff on exports from China that Trump and Chinese President Xi Jinping hammered out in October—and far below the 145% levy that was threatened earlier in the year. Like thousands of other executives, though, Ruffman is discovering that while you can move your manufacturing out of China, it’s much harder to move China out of your manufacturing. […]
When I first started working in Vietnam, foreign money mostly flowed into lower-value sectors such as textiles and shoes. Today it’s a dynamic manufacturing hub, last year exporting a record $405 billion in goods, ranging from T-shirts to TVs. About 30% of that goes to the US, and Vietnam has the third-largest trade surplus with the country, behind only China and Mexico. And Phu Ly, though it came late to the transition, is fast becoming a part of that revolution. […]
Add it all up, and Vietnam’s costs can run 10% to 15% higher than those in China. But the company has no plans to stop shifting production away from the mainland. With tariffs bouncing around so much, Ruffman says it’s imperative to diversify sourcing. And someone has to pay—manufacturers, brands, retailers or consumers. For now, Learning Resources has boosted prices an average of 6% to account for tariffs. The toymaker aims to hold the line at about that level, but eventually that may become impossible if the trade wars continue. “Raising prices is the last thing we want to do,” she says. “After a certain point, no one’s going to buy your products.” […]
After a week of upbeat conversations like this, it’s clear that optimism runs deep in Vietnam. I sense that Ruffman largely agrees, though she has some reservations. She tells me she’s been impressed with the quality of production she’s seen and the skills that workers are picking up. “Vietnam certainly has potential,” she says as we say our goodbyes. But China’s combination of expertise and infrastructure “doesn’t exist anywhere else,” she says. “That just cannot be replicated in 2025 in Vietnam. It’s going to take time.” —With Yang Yang, Nguyen Dieu Tu Uyen
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