A CEO's Education in Government: Tariffs, Trade, and the Bottom Line

The disconnect between government policy and the realities faced by American businesses is a recurring theme in today's economic landscape. This article explores the challenges faced by Rick Woldenberg, CEO of Learning Resources, a Chicago-based, family-owned small business that produces educational toys for young children, as he navigates the complexities of tariffs and trade policies. Through his experiences, we gain insight into the broader implications of governmental decisions on businesses, families, and the economy.

The China Connection: A Necessary Partnership

For Learning Resources, China has been a crucial manufacturing partner. Woldenberg explains that "but for China, we would not exist." To compete in the competitive United States consumer market, the company needs the "world best cost," which China provided. Manufacturing in the US would cost three to ten times as much, making the available market microscopic and preventing them from employing the same number of people. Despite looking for manufacturing partners in the US for over ten years, they have not found a viable way to manufacture domestically. Even exploring technology and automation solutions like farms of 3D printers, they determined that these are not competitive for a product that sells for $20.

Woldenberg emphasizes the importance of long-term partnerships built since 1990, requiring developmental growth on both sides to meet high market standards for finish, quality control, and safety.

The Tariff Tsunami: Disruption and Expense

The implementation of tariffs has created significant challenges for Learning Resources. With tariffs making manufacturing in China untenable, the company is moving everything, an "incomprehensibly complex" process fraught with "daily crises" and substantial costs. The frictional costs of moving each of their approximately 2,900 items from China are estimated to be between $4,500 and $7,000 per item, totaling a staggering $10 to $20 million. This relocation is not about achieving lower costs or greater efficiency; it is a costly and disruptive necessity that will likely lead to higher costs, reduced efficiency, and slower operations.

The sudden and unpredictable nature of tariff changes exacerbates the problem. A shipment assessed with tariffs that "skyrocketed" from 20 to 145 percent between April 2nd and April 9th resulted in over $1 million in tariffs for $1 million worth of merchandise.

Woldenberg stresses that these are not the factories' products but Learning Resources' products, with the company owning the intellectual property. The factories are performing a service. Canceling orders is possible but results in contract problems.

The Financial Strain: A Mathematical Impossibility

The financial impact of tariffs is immense. Woldenberg explains that it is "mathematically impossible at these levels to absorb" the costs. He illustrates by stating that if the company only paid its employees' base pay and nothing else, it still could not cover the tariff expenses. Last year, Learning Resources spent $2.3 million on duties and tariffs. The lack of advance warning and the constant flux in regulations further complicate financial planning and pricing strategies.

The tariffs on Chinese goods are so high that importing from China is only done "under desperation conditions." The company is forced to move 60 percent of its product manufacturing elsewhere, creating a scramble to find alternative locations and assess new costs. New product development is also affected, with cancellations, delays, and price changes becoming commonplace. The situation is so dire that the company is "just burning money to kind of just stay where we’re at, if we’re lucky."

Abandoned Investments: A Casualty of Uncertainty

The uncertainty created by the trade policies has led to the abandonment of significant investments. After four years of planning, Woldenberg canceled a deal to build a 667,000 square foot warehouse with state-of-the-art technology. He stated that he could not foresee circumstances where he could resurrect the deal, demonstrating the profound impact of policy uncertainty on long-term business planning.

The Elusive "Gotcha": Navigating the Unknown

Moving the supply chain is a complex and lengthy process. Woldenberg estimates that it will take longer than expected, given the sheer number of products (2,400) and the lack of a single location to accommodate them all. He also expresses concern about unforeseen consequences, questioning whether the current trade strategy is another ill-conceived "master plan." The easiest option, moving production from China to Vietnam, is complicated by concerns about Vietnam being a transit point for Chinese goods.

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The Price Hike Paradox: Impoverishing Consumers

Woldenberg argues that tariffs are a "mass self-impoverishment plan." If prices must be raised by 50 percent or more to offset tariff costs, consumers will be paying significantly more for the same goods while their salaries remain stagnant. This will inevitably lead to a decline in the standard of living as people can afford less.

The need to raise prices quickly is driven by the fact that tariffs are an "asset tax" paid upon arrival of goods, unlike income taxes paid after profits are realized. This forces companies to accumulate funds to cover these upfront costs.

Political Disillusionment: A Voice Unheard

Woldenberg reflects on his past experiences with government regulations, noting a shift in political responsiveness. In 2010, he felt that Republicans were more sensitive to the impact of regulations on his company, while Democrats were indifferent. Today, he feels that the current administration is detached from reality and unresponsive to the concerns of American businesses. He finds the administration's perspective, exemplified by suggestions of "Americans screwing in tiny little screws or buying bubbles from China," profoundly disturbing. The feedback loop of lower stock prices and business leaders' warnings seems to be ignored.

Standing Up for the Community: A Fight Worth Fighting

Despite the challenges, Woldenberg is determined to fight for his company, his employees, and the broader community that depends on Learning Resources. With 500 employees and their families, millions of children who use their products, and thousands of dealers worldwide, the stakes are high. He asserts that they are "not going down without a fight."

Government Contracting in a New Era

The experience of Learning Resources highlights the broader challenges facing businesses in dealing with government policies. Government contracting is no longer just about delivering scope; it's about leading through complexity, responding with urgency, and showing up with empathy while delivering quantifiable results-faster. Agencies are grappling with shifting mandates, modernization demands, workforce disruption, and evolving public expectations, all with leaner resources and tighter timelines.

Read also: Literacy and the Brain

To meet these challenges, government contracting needs to evolve by:

Delivering Impact Early and Then Building On It: Starting with pilots, iterating quickly, sequencing efforts, and tracking tangible outcomes.
Centering the People, Not Just Platforms: Building services with users, pairing systems with strategic content, and creating consistent feedback mechanisms.
Making Emerging Tech and Artificial Intelligence (AI) Practical: Streamlining processes, assessing operational challenges, building from what already works, and connecting technology investments to measurable outcomes.
Rebuilding Trust Through Transparency and Outcomes: Accelerating delivery cycles, designing with clarity and users in mind, improving task completion rates, and making performance visible.

The Broader Economic and Political Landscape

The CEO's experience is set against a backdrop of broader economic and political forces. Government shutdowns, infrastructure funding disputes, and potential policy shifts create further uncertainty for businesses. The global landscape is also in flux, with trade tensions, supply chain disruptions, and evolving geopolitical dynamics adding to the complexity.

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