Firms Banking on China’s Status Quo : Trade: Threatened loss of country’s most-favored nation designation could drive up costs of U.S. businesses.

Robert Solomon, fresh from a trip to China, where he was checking on orders of Flintstone plush toys, has one word to describe the impact on his company if the United States yanks China’s most-favored nation trade status: horrific.

About half of the stuffed animals and other toys sold by Solomon’s Woodland Hills-based Dakin Inc. are manufactured in China. Overall, about 30% of the toys sold in the United States by various toy marketers, including several based in Southern California, are made in China.

If the Clinton Administration follows through on a threat not to renew China’s trade status when it comes up for annual renewal in June--a move that would boost tariffs on Chinese exports--companies like Dakin would see a hefty boost in their costs.

“If MFN were revoked, I would not be out of business,� said Solomon, Dakin’s chairman. But he said he would have to pull out of China, where he contracts with a dozen factories that were built by Hong Kong investors, and shift production to other Asian countries such as Thailand, Indonesia or the Philippines.

“That would be chaotic, because we wouldn’t be the only ones doing it,� said Solomon, whose private company grossed about $75 million in sales last year. “There would be a mad dash out of China� by everyone in the toy industry looking for other low-cost manufacturing sites in Asia.

U.S.-China trade last year totaled $39 billion, with China buying $9 billion in U.S. products, mostly aircraft and telecommunications equipment, and the U.S. taking in almost $30 billion in Chinese exports, much of them toys, shoes and apparel.

In consideration of the impact on U.S. industry, U.S. officials have in recent days signaled a willingness to consider modifying its actions if China fails to make progress on human rights. For example, Assistant Secretary of State Winston Lord, said last week that trade benefits may be withdrawn only from China’s state-owned enterprises.

Still, the possibility of broad sanctions has provoked concern and anger among many U.S. manufacturers.

“I have a very, very strong personal opinion on it,� began Steven Nichols, the soft-spoken chairman of K-Swiss Inc., a Chatsworth marketer of sneakers. “If you really want to attack communism, you do it with free enterprise, and that means free trade,� Nichols said, his voice rising. “I don’t want to defend China, but we’re out of our mind not to do business with them every day.�

K-Swiss gets about a million pairs of shoes, or about 15% of its annual total, at a 75,000-square-foot factory in the countryside along China’s southeast coast. U.S. tariffs on those shoes average about 10%, but Nichols said they would jump to 20% or more if China loses most-favored nation status.

If that happens, “we could not operate there and send shoes to the U.S.,� Nichols said. “It’s difficult enough to compete with Reebok,� he said, adding that giant U.S. shoe companies like Reebok and Nike have a greater share of their products made in China than K-Swiss, and are very likely to lead an exodus out of China if its status is not renewed.

K-Swiss, which does about $150 million in annual sales, also buys shoes in Indonesia, Malaysia and the Philippines. “There is more capacity there,� Nichols said. “But if China closed down, they would know they could get a premium. . . . In the short term, there might be less shoes available and the price would go up� for retailers and consumers.

Like many other U.S. footwear companies, K-Swiss has relied more on China in recent years because of wage increases in countries such as South Korea. Besides lower wages, China’s shoe factories, which are owned largely by Taiwanese businessmen, have a reputation for high productivity and quality, said Peter Mangione, president of the Footwear Distributors and Retailers of America, a trade group in Washington, D.C.

One of Mangione’s 70 members that is concerned is Cherokee Shoe of Thousand Oaks, which makes a third of its athletic and casual footwear in China. Cherokee Shoe, a unit of the Sunland-based apparel firm Cherokee Inc., does about $30 million in annual sales.

“I don’t know what human rights has to do with controlling one’s economy,� said John Lovely, executive vice president of Cherokee Shoe, which has been been struggling enough with the recession. “We’re assuming this is not going to happen,� he said of China’s loss of trade status. But if it does, he said, “it will be costly to us.�

William Mow, founder and chairman of apparel firm Bugle Boy in Simi Valley, said he has not taken steps to prepare for China’s loss of most-favored nation status. Mow considers it unlikely because of the importance of the rapidly growing Chinese market to the United States. “I hope we all come to our sanity,� he said.

Currently, Mow relies on China for 22% of his company’s production, which translates into 10 million shirts and pants made in China. Mow, whose family fled communist China when he was 13, contracts with factories in 26 Chinese cities, including Shanghai. Mow says he has to have production spread throughout China because there are U.S. quota limits for goods made in China, which in turn allocates that quota on a city-by-city basis.

If China loses its trade status, some of the duties will be 100%, Mow said. “We would definitely have to terminate our business there,� said Mow, who owns 90% of Bugle Boy, which last year had sales of about $440 million.

Mow says Bugle Boy produces clothes in a dozen other countries. But those countries also have U.S. quota limits, and some of them are running at capacity. “It would take us two years to allocate the Chinese production,� he said.