My siblings and cousins grew up watching Tom and Jerry. For some of them, the only black skinned person they ever saw on TV was Mammy The thing is, of all the horrible shit kids are exposed to, fiction like Seuss is tame compared to the stuff they threw down my throat. Go find Sunday Bible School materials from the 50's and 60's if you want to really be angry. For that matter, go look into the horrible, terrible propaganda they use in religious homeschooling. In my case, we were raised to believe that Protestants should not be trusted as they turned their backs on the Church that Jesus gave to Saint Peter himself and therefore they had no moral center and were all but fallen demons. Also Protestants are the KKK and will kill you and your parents in your sleep if you are not vigilant.
We live in a very different time. Maybe I am just old, maybe I have other shit to worry about. But in my experience kids know that fiction is not real. And most healthy sane adults will understand in their internal structure of mind that the make-believe is just that: not real. The other thing, something that should really be celebrated, is that your typical 5-7 year old today most certainly interacts with someone that looks, acts, prays, different than they do. When I grew up? everyone looked like me and me family, we all went to the same churches, and everyone in our school was Irish and/or Catholic. Now? As much as I do not like school bussing, it really has made it so that every kid has at least some interaction with someone not like they are. Kids today also play games and talk to people online from other nations, something that when I grew up was unheard of unless you went to the rich people school.
Foreign people are not some odd mystery any more; they are neighbors. The chinese guy in the book probably doesn't even register in most kid's heads because there is a Chinese kid in class with them. I'd be interested in someone asking those questions to kids; I bet the answers would shock all of us (in a good way).