- [Narrator] There are millions of toy microscopes
like this one in the US.
They're made in this factory in China.
- Here's our flagship product's assembly line.
We produce more than 30 million pieces.
- [Narrator] This microscope is part of a list of goods
that were spared from new tariffs this Christmas
as China and the US have agreed to a limited trade deal.
But months of trade war have already transformed
the way Johnny Sze's company operates.
- When the tariff kicks in,
the whole cost of the product
will be much higher than before.
- [Narrator] 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.
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 push 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.
- [Narrator] Johnny's company is one of thousands
of factories in Southern China
manufacturing toys that are exported to the US.
We traveled to China's toy capital
just days before the US 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 US.
- This is baby toys.
It's animal toys.
Truck toys.
Barbie toys.
This is bubble soap.
We have many, many kind of toys.
- [Narrator] Tony Chen connects American toy companies
to Chinese manufacturers.
- My favorite toys is the electronic toys
like drones with camera.
Anything has more electronics, make it cool, I like it.
(Tony laughs)
- [Narrator] He says some of his biggest customers
are US-based Amazon toy sellers.
He says business has been strong in the past few years.
- I get my money from everything.
- [Narrator] 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.
- [Narrator] 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 speaking in foreign language)
- [Narrator] 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.
- [Narrator] These strategies aren't fool-proof.
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 US final consumer,
they hope to get a good quality and a good price.
The trade war will stop them to get that.
- [Narrator] With Chinese manufacturers
supplying about 85% of all toys sold in the US,
some US 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.
- [Narrator] Besides using cheaper components
to build each microscope.
- In case a tariff kicks in.
- [Narrator] 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 five to 10%.
- [Narrator] 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.
- [Narrator] 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.
- [Narrator] It's still early to know
if the US 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 US 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 US, 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.
(gentle music)