In the ensuing four weeks, Cheung initiated drastic measures to conserve capital. Production at his 600,000-square-foot facility in Shaoguan was slashed by 60% to 70%. Consequently, a third of the factory's 400 Chinese workers were laid off, and the remaining employees faced reduced hours and wages.
Facing an existential crisis, Cheung is now engaged in a precarious and ambitious endeavor to relocate his manufacturing operations to Vietnam. He estimates he has approximately one month before the company, established by his father 42 years prior, exhausts its financial resources.
Huntar's predicament is representative of the widespread challenges confronting numerous factories in China, which accounts for approximately 80% of toys sold in the U.S., according to The Toy Association, a trade group. The escalating trade war between the United States and China has led to a sharp decline in new orders, posing a significant threat to the toy sector in both nations.
What distinguishes Huntar is its unique position straddling both sides of the trade conflict. While Cheung operates a factory in China, seemingly fitting the profile of those targeted by U.S. tariffs, his company is based in the U.S. He is an American small business owner, the son of a Chinese immigrant, and his second-generation family business employs 15 people in the U.S., whose jobs are also at risk if Huntar fails.
The Trump administration's rationale for tariffs includes incentivizing companies to bring manufacturing back to the U.S. or, at the very least, shift production away from China. However, economists argue that this outcome is unlikely due to several factors highlighted by Huntar's situation: a scarcity of suitable facilities and skilled workers in other countries, the prohibitive cost and logistical challenges of relocating heavy and specialized equipment, and the critical lack of time for companies facing immediate financial pressure to overcome these obstacles.
The more probable scenario, as illustrated by Cheung's desperate relocation efforts, is the closure of factories. This potential economic disruption reportedly prompted Beijing to engage in trade negotiations with U.S. officials in Geneva over the weekend. Sources familiar with the Chinese government's perspective indicated that China cannot readily find alternative markets to compensate for the potential loss of U.S. demand for product categories like toys, furniture, and textiles, which are already experiencing the impact of tariffs. As trade discussions commenced, President Trump suggested a willingness to reduce China tariffs to 80%.
However, Cheung believes that even an 80% tariff offers little hope for Huntar's survival, stating that any tariff rate exceeding approximately 50% would make it exceedingly difficult to remain viable. In practical terms, he sees little difference between an 80% tariff and the current 145% levy.
While Huntar has weathered previous economic storms, such as the 2008 recession and the COVID-19 pandemic, Cheung describes the current crisis as unprecedented. Unlike the gradual slowdown of the recession or the temporary slump of the pandemic, the imposition of tariffs effectively halted his manufacturing business "overnight." He now feels that his only recourse is a fragile hope for a swift resolution to the trade dispute.
Huntar's operations involve manufacturing toys for U.S., Canadian, and European distributors and retailers, including Learning Resources Inc and Play-a-Maze. The company also produces its own line of educational toys under the Popular Playthings brand, the shipment of which to the U.S. has been suspended, resulting in an estimated loss of hundreds of thousands of dollars so far.
American ownership of factories in China is uncommon due to legal and cost barriers for foreign entities, according to attorney Dan Harris, who specializes in international manufacturing law. Huntar's unique structure stems from Cheung's father establishing the factory in 1983, several years after immigrating to the U.S. Cheung, who joined the company in 2004, still uses his father's original desk, a tangible link to the American dream his father pursued after escaping communist China.
The recent weeks have been particularly challenging, with Huntar facing $750,000 in canceled shipments. Cheung anticipates that even if the trade war ended immediately, fully recovering this value would be difficult due to the likely surge in shipping costs as factories rush to clear backlogs, a phenomenon he witnessed after the COVID-19 pandemic.
Rick Woldenberg, CEO of Learning Resources and a long-time client of Huntar, expressed sympathy for Cheung's plight, noting that his own company has been forced to cancel future production in China due to the prohibitive increase in annual tariffs, projected to rise from $2 million to $100 million. Learning Resources, which employs 500 people in the U.S. and manufactures 60% of its products in China, has even filed a lawsuit against the U.S. government to challenge the tariffs. According to a Toy Association survey conducted in April, over 45% of small and mid-sized toy companies in the U.S. fear that the China tariffs will force them out of business within weeks or months.
In his search for a viable alternative, Cheung has been contacting factories in Vietnam, hoping to relocate Huntar's manufacturing operations. Moving production to the U.S. is deemed economically unfeasible due to significantly higher labor costs. However, even in Vietnam, Cheung faces substantial financial and logistical hurdles, including limited factory space, intense competition from other companies seeking to relocate, the need to train a new workforce, and the time-consuming process of implementing safety and quality control measures.
Furthermore, Huntar's existing factory in China boasts infrastructure that would be difficult and costly to replicate. This includes a solar power system, specialized HVAC and wastewater treatment systems for managing the environmental impact of toy decoration processes, and over 30 heavy injection molding machines, the relocation or replacement of which would require a substantial investment exceeding $1 million.
Faced with these challenges, Cheung is contemplating a drastic restructuring of his business. One possibility involves outsourcing the production of Huntar's proprietary Popular Playthings line to a Vietnamese factory while discontinuing the manufacturing of toys for third-party clients. The alternative, a high-stakes gamble, would be to maintain the existing factory in China in the hope of a swift resolution to the trade war. However, the costs of operating a large factory at a fraction of its normal output would likely deplete the company's remaining capital within weeks.
Cheung describes this critical juncture as a moment where he may have to "cannibalize" his own business to salvage a portion of it. This decision is particularly poignant given the legacy of his father, who sought freedom and opportunity in America and envisioned the family business continuing through future generations. Cheung notes that his father, while grateful for the life he built in the U.S., has seen his perception of America as a land of boundless opportunitydiminished by the current circumstances.