People attend the North American International Toy Fair, on March 3, in New York City. Nearly 80 per cent of toys sold in the U.S. are made in China.Michael M. Santiago/Getty Images
American parents are expected to particularly feel the effects of an escalating trade war between the U.S. and China, with the price of toys likely to skyrocket as a result of stringent new tariffs on Chinese imports.
U.S. President Donald Trump this week introduced 10-per-cent across-the-board tariffs on all Chinese imports, doubling the extra duty imposed on such goods since he took office in January to 20 per cent. Beijing immediately responded in kind, slapping new tariffs on U.S. agricultural and food products.
Before coming to power for a second time, Mr. Trump had threatened China with 60-per-cent tariffs, and most analysts expect the trade war to continue to escalate in the weeks and months to come, even as Washington has shown some room for manoeuvre when it comes to similar tariffs against its other largest trading partners, Canada and Mexico.
The U.S. toy industry is particularly vulnerable, as nearly 80 per cent of toys sold in the U.S. are made in China, said Greg Ahearn, president and chief executive officer of the Toy Association. He described the 20-per-cent tariffs on Chinese imports as “crippling.”
Steve Rad, CEO of Abacus Brands Inc., a toy maker based in Austin, Tex., said companies would have to “go to war” with their pricing and cost structure to figure out how to avoid passing on the costs of the new duties to customers who will be feeling the pinch elsewhere as a result of Mr. Trump’s multifront trade war.
Mr. Rad said that for one product the company makes, a US$39.99 kit that teaches children how volcanoes work, he’s thinking of switching to cheaper, lower-quality paper.
In China, manufacturers are so far taking a wait-and-see approach, said Cai Jinfeng, a production supervisor at Zefeng Toy Factory in Shantou, in southern Guangdong province, one of the country’s largest domestic toy production and export distribution centres.
“The specific impact of tariffs is still unclear at the moment,” Mr. Cai said. “We have no control over them. It’s up to the U.S. to decide what they want to do, and we’ll just accept and act accordingly.”
Exports to the U.S. account for around 60 per cent of Mr. Cai’s company’s overseas sales, with the bulk of the rest going to Europe. Most of the toys Zefeng ships internationally are building blocks similar to Lego, retailing for around US$20 to $30.
Manufacturing in China is already extremely streamlined and cost-efficient, and Mr. Cai noted there was little way to significantly reduce costs at the factory level, meaning the impact of the new U.S. duties would have to be absorbed by importers, or more likely by the ultimate consumers.
“We can only raise prices,” he said.
Mike Zhang, another factory owner in Shantou, said the burden of tariffs “will largely fall on the distributors and overseas buyers.”
“As manufacturers, we won’t raise the factory price if our costs remain the same,” he said. “If the U.S. imposes tariffs, the corresponding amount will be reflected in the cost of the product.”
Given toys are not a regular purchase for most families, Mr. Zhang predicted most parents will bear the new cost.
“They’re not essentials, but if kids want toys, parents will still buy them,” he said.
But with prices expected to rise across the board in the U.S. as a result of Mr. Trump’s tariffs, the extra duties could add up for consumers as supply chains take time to adapt to the trade war.
Bedassa Tadesse, a professor of economics at the University of Minnesota Duluth, estimates the U.S. economy could face an annual loss of US$109.23-billion as a result of Mr. Trump’s tariffs against Canada, Mexico and China, and potentially higher if duties on Chinese imports continue to rise owing to tit-for-tat escalations.
Research by the Tax Foundation, a non-partisan Washington think tank, found that tariffs on Chinese goods will add US$329 in annual costs per U.S. household, while the tariffs against Mexico and Canada will cost US$435 and US$309 per year respectively.
But while initial costs will be felt in the U.S., supply chains – particularly for less complex goods such as toys – may shift to countries other than China over time, enabling importers to keep costs down. Already there has been a move to manufacturing in Southeast Asia rather than the Chinese mainland as a result of the COVID-19 pandemic and rising labour costs in China.
In a report last year, Ma Jiajin, an analyst at the Guangzhou-based Yuekai Securities, predicted new U.S. tariffs could accelerate the offshoring of manufacturing from China when it comes to toys and other consumer goods.
He contrasted this, however, with other goods, such as rare earths, chemicals and plastics, where supply chains are far less elastic, and the U.S. industrial chain is far more intertwined with China, meaning the cost of tariffs will be keenly felt on those products.
With reports from Alexandra Li and the Associated Press
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