Deep Dive
Shownotes Transcript
Hundreds of vendors crowded into a Chicago convention center this week for the country's biggest homeware trade show. We make these insulated vegan leather lunchboxes. So these are our car and closet diffusers. All of our pottery has saucers as well as drainage hole to make the perfect home for your plant.
The expo is full of businesses showing off their merchandise, everything from cookware and linens to luggage and vacuums. But this year, the convention has been dominated by one thing.
There's a lot of talk about tariffs. Everyone's thinking about it. We're telling our larger customers that the tariffs are going to become higher and it's going to affect us. I'm a little bit worried. It's a challenge, you know, like everybody will be paying more. And, you know, there's complete uncertainty. These vendors' concerns largely focused on the new tariffs Trump imposed on China yesterday. Many of these companies make products there.
And to avoid the tariffs, they're thinking about moving their operations out of China altogether. Like Steve Greenspan, CEO of a company that sells home organization products. We're moving significantly more to Cambodia, Thailand, more in Vietnam and Indonesia as well. And you're moving to avoid the tariffs from Chinese imports?
This is influenced by tariffs, absolutely. This is an exceedingly difficult, long-term, disruptive process. Welcome to The Journal, our show about money, business, and power. I'm Kate Linebaugh. It's Wednesday, March 5th. Coming up on the show, Trump's tariffs are pushing companies out of China.
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It's your turn. Visit servicenow.com. I called up Steve Greenspan while he was at that Chicago homeware convention. He tried to find a quiet room, but it was hard. Steve is the founder and CEO of a company called Honey Can Do. Honey Can Do. That's the name of your company?
That's the name of the company. It's a little play off the honey-do list. So one of our goals is to try and enable folks to do things around the house. Nothing makes me happier than seeing a spot that I can organize and make it a little bit more efficient. What's your sort of crown jewel of your home organization?
I would probably say it's the man cave. I've got everything well organized there. I know exactly where everything is. I've got a little smoothie station. Then have that down to a science. For protein shakes? Yeah, protein shakes, exactly. I'm a marathon runner and a triathlete.
Steve's company sells products like shelving units, drying racks, and laundry hampers. His customers are major retailers like Walmart, Amazon, and Home Depot. In 2024, he had about $75 million in revenue. How long have you been running this business? So I started Honey Can Do in 2007.
Started as a complete greenfield, no employees, no products, no customers, no vendors, no anything, and just built it from there.
To build the business, Steve looked to China, where he developed a network of trusted manufacturers and subcontractors. When I first started getting involved in producing products in Asia, which is the late 90s, early 2000s, China was the place to be. And it was because the infrastructure was there. It was low-cost labor.
And you could do things efficiently, high quality, and you're able to find partners that understand your needs and can make the infrastructure work for you. At one point, Steve relied on Chinese manufacturing for about half of his products. And things were going well until 2018, when President Trump, in his first term, imposed tariffs on China.
So then once the initial tariffs hit China in 2018, and even before that when there was the talk about it, we and our subcontractors, our longtime partners in China, started having discussions and made plans to very quickly move outside of China. Steve decided to move some production to Vietnam.
This is tens of millions of dollars worth of investment. We're starting with literally a pasture and building it up from there. You have to train employees that have never made this type of product before. You have to build up your entire infrastructure for raw materials as well as the cardboard boxes that the products go into. You have to build your transportation network. You have to build your shipping network because now you're going out of new ports in a new country.
And this is a very, very disruptive thing. Steve's challenges went beyond just building out his operation from scratch. Vietnam hasn't had as much investment as China, and that makes doing business there more difficult.
In China, they have a very wide network of multi-lane highways that can bring you just about anywhere that you would need to go. In Vietnam, typically it's one highway going from city to city that's two lanes, and you might have a series of trucks that are being slowed down by somebody using an animal.
to pull them or it might even be a number of bicycles there that are blocking up traffic and you might be able to go the same distance in one hour in China and it might take you four hours.
in Vietnam to do the same distance. So there's an infrastructure difference. Exactly. And then deep water ports. You know, Vietnam does not have the same access and there's port delays and ship delays and everything else. And it's inefficient and causes higher pricing. But it's still cheaper than paying the tariffs? It's...
The answer is maybe. In some cases, the landed cost is less expensive than paying the tariffs out of China. Since 2018, Steve has significantly reduced his reliance on China. Today, only about a fifth of his production is there. This year, Trump restarted a trade war with China. In February, he imposed new 10% tariffs on Chinese imports.
Yesterday, another 10% tariff went into effect. Trump has said these actions are to help stop the flow of chemicals that are used to make fentanyl. China said it would hit back with retaliatory tariffs. A government spokesman said, quote, "If war is what the U.S. wants, be it a tariff war, a trade war, or any other type of war, we're ready to fight till the end." Steve now wants to move even more production out of China.
So as of now, and this process started even before the most recent tariffs were announced, we started expediting moving products out of China very quickly and into Cambodia, Vietnam, and Indonesia have been the primary targets there. You're not moving production to the U.S.? No. Making these types of products within the U.S.,
The infrastructure doesn't exist and we don't have competitive labor to be able to do these things. You know, we're talking about, in our case, a drying rack that might retail for under $19.99. So it's not even a conversation for our types of products to be made in the United States. Coming up, what all this disruption looks like for the world's second largest economy, China.
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The new trade war between China and the U.S. is rippling through China's massive manufacturing sector. Our colleague Hannah Miao has been talking to Chinese companies about their experience with the tariffs. People are definitely confused, fearful, panicked even. I've spoken with manufacturers across several different industries, and I think the first one
reaction is just that they don't know what Trump is going to do next. It's really hard to predict his next steps. So what do they say they're going to do? Are they going to like move or build new production facilities somewhere else?
Yeah, companies are in the process of doing that or were doing it, you know, in the months leading up to the election. They're accelerating their efforts. Or if they hadn't bought land yet, for example, they're going to buy land. Whatever stage they're in, they're trying to accelerate it if they have the means to move out to Southeast Asia. So they're relocating production to Southeast Asia.
It depends from company to company. And not every company is planning to move all of their production over there. But certainly people I've spoken with are planning to move more of it or trying to get it started. You know, it's something they've been wanting to do or had been talking about doing. But Trump's return to the White House and the very rapid way he's escalating tariffs is certainly putting more pressure on them to do so.
Hannah spoke with a lawyer in southeastern China who works with local manufacturers. And he said his phone has been buzzing with messages and calls from his clients. And they're asking him, what do we do about this? You know, if Trump just put another 10 percent tariff on Chinese imports. And a couple of his clients, so one is a manufacturer of electrical transformers.
And this client was already shifting some production to Malaysia. And another was an auto parts maker looking to start moving some production to Thailand. And both of them asked him, can we speed it up? Is there anything we can do to quicken the process? And he described it as companies being in a panic and they're just grasping for any solution possible.
If more and more manufacturing leaves China, what will that do to the Chinese economy? It'll certainly be painful and a challenge to work through. China's economy is quite reliant on exports right now. But China is also a manufacturing powerhouse. It's really hard to replace China. They talk to American manufacturers, Chinese manufacturers,
They all say that it'll be really hard to be completely out of China. China has also been working to become the dominant country for industries like electric vehicles and solar panels and some of the more higher-end technology items. So that will continue to be an advantage for China. Can China's economy absorb this shock?
Right now, China's economy is quite dependent on exports. It's one of the rare bright spots in the economy and drove a significant chunk of China's economic growth.
In China's domestic economy, consumer demand is pretty weak. Households are not spending a ton of money. After a property market collapse, it has really weighed on sentiment. And in the manufacturing sector, there is overcapacity in many industries. And that's why exports have become increasingly important for China's economy. And with the U.S. being a major trading partner,
Tariffs are definitely hitting China where it hurts at the moment. Are Chinese manufacturers worried that if they move their production out of China to Vietnam or Malaysia or Indonesia, say, that the U.S. will then hit those countries with tariffs? Absolutely. This is part of the uncertainty that is going on right now that is making people worried
really scared and panicked. And it's just hard to know what to do in this situation. So Trump has talked about tariffs that are reciprocal or targeting countries with big trade imbalances with the U.S. Vietnam is high on that list of targets. And if one of the goals of these tariffs is to bring manufacturing back to the U.S.,
But companies are moving to Southeast Asia. Are these tariffs having the intended effect? I think that's a question a lot of business owners are asking and economists are asking for sure. A lot of the manufacturers I talked to in the U.S. say, we can't really start building this in the U.S. There isn't the capacity here to build everything that American consumers want to buy. Right.
What are you looking for next? What I'm looking for next is if there will be some more negotiation between the U.S. and China and what kind of deal that might look like. It's hard to see...
what China could offer that would satisfy the U.S. If we buy more U.S. products, is that enough? If we try to cut down on our trade imbalance, is that enough? And so it's hard to know where this goes from here. I think it will be when things really start to get painful for the American consumer that there will be a reevaluation. ♪
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Thanks for listening. See you tomorrow.