Trump’s trade war on Chinese goods could hit the toy industry hard

This holiday season, parents may want to throw a few extra toys in their carts.

The U.S. government’s recently announced tariffs on Chinese goods spell trouble for the toy business — and shoppers. The industry might be prepared for this coming winter, because products are mostly finished and prices are set, but next year could be more expensive for manufacturers, retailers and consumers, toy industry experts told MarketWatch.

Individual toys are not on the list of products affected by the tariffs President Trump announced Monday, but some raw materials and chemicals are — including lithium batteries and the chemicals that make Silly Putty. As a result, toy prices next holiday season will be higher, said Jackie Breyer, editor-in-chief of the Toy Insider, a toy review site.

“The good news for this holiday season is manufacturers have the parts they need to finalize any products — 2019 is a whole other story,” she said.

On Sept. 24, $200 billion in Chinese imports will face a 10% tariff, and on Jan. 1, 2019, the rate will jump to 25%. President Donald Trump said he will issue a third round of tariffs, which would affect $267 billion of additional imports, if China takes “retaliatory action against our farmers or other industries,” according to a White House statement. The threats are the latest move in an escalating trade war between the U.S. and China.

Another round of tariffs would probably include finished toys, said Richard Gottlieb, chief executive officer of Global Toy Experts, a consultancy for the toy industry.

Other items sold in children’s stores, including furniture and bicycles, are already on the list, said Rebecca Mond, vice president of federal government affairs at the Toy Association. “Overall, these actions have been very harmful for the toy industry,” she said. And even though prices are set for this holiday season, higher costs could get passed onto consumers, Mond added. “It will depend on the company and how they can absorb these costs,” she said. “We are playing the wait and see game.”

High chairs, booster seats, bouncers, infant walkers, cradles and play yards were on an earlier list of items affected by tariffs, but most of those items were exempted from tariffs after manufacturers lobbied the U.S. Trade Representative. “With China supplying the vast majority of these juvenile products and with no alternative manufacturing capacity readily available elsewhere, tariffs on these juvenile products will result in higher prices and fewer choices for U.S. consumers,” wrote Corinne Murat, director of government affairs at toy manufacturer Mattel MAT, -0.07% in a public letter to the Office of the United States Trade Representative (USTR) in late August.

Horizon Group, a company that makes the children’s craft kits “It’s So Me” and “Braid-tastic!” said the tariffs would affect their products as well. “These items, e.g. sand and wooden sticks, represent some of the most basic and essential everyday craft-related items, they are an absolutely non-critical area with regard to manufacturing and intellectual property and relevance to national security concerns, and respectfully they have absolutely no place on the list of proposed tariffs,” Horizon Group’s lawyers wrote in a public letter to the USTR.

Most toys are made in China, and if they aren’t, their parts are, Breyer said. China offers cheap labor and low production costs, and safety isn’t as much of a concern as it is in other countries, like Vietnam, Thailand or India, she said, which makes it cheaper to do business there. Imposing tariffs won’t give U.S. manufacturers an incentive to make more toys in the U.S., because of the increase in production costs and materials prices, Mond added. “The cost of production here in the U.S. is still higher than the costs in China with these tariffs,” she said.

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