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ARE WE NEARLY THERE YET? TARIFFS, THEIR IMPACT & TOY INDUSTRY OUTLOOK FOR 2025…

ARE WE NEARLY THERE YET? TARIFFS, THEIR IMPACT & TOY INDUSTRY OUTLOOK FOR 2025…

Do you want to find certified compliant Toy manufacturing in new countries outside China? We can help…we have been guiding major and smaller Toy Cos since 2011 on manufacturing options in alternative geographies. Send me a DM for more information/to get quotes, or check out www.ToyTeamIndia.com

It’s been an ‘interesting’ last couple of months. The Toy trade shows seem like a million years ago already, as all hopes and expectations of a good year were largely dashed by unprecedentedly high tariffs imposed on shipments from China (producer of c. 75-80% of the world’s Toys) to the USA. And it’s not just the completely unviable level of tariffs imposed on China, it’s the unplanned instantaneous imposition and removal of tariffs on China and other countries which has seen the Toy business (as well as other consumer product businesses) scampering around seeking alternatives every time the wind changed.

We don’t need to go into the U.S. domestic political arguments here related to once mighty manufacturing towns which lost their factories and whether tariffs on imports can ever be the right solution to that problem. All that has been done to death across Linked In and other formats. One thing I would just like to highlight though as an international guy focused on the full world of Toys is the impact on the world outside the USA of having sales into the world’s biggest market on pause. The issue is that any non-U.S. business which sells overseas is likely to have an imbalance in terms of the importance of their U.S. revenues to their overall business. And furthermore, you might think that all those factories in China which have been forced to pause production for and shipments to Uncle Sam could instead just push on the rest of the world. But the issue with that is that these factories achieve efficiency and cost effectiveness based on scale of production and consumption. Remove the HUGE market that represents as much as 40% of the global Toy market in some years, and suddenly nearly everything becomes unviable. Suddenly overhead is not justifiable, and salaries need to be cut. Seasonal recruiting won’t happen, or if it does it will be a desperate late rush to find enough bodies to pack the production lines. Many of those factory owners who have been forced to leave the Toy manufacturing sector in China during the last couple of months maybe lost to us forever annoyingly. Believe it or not there are more profitable sectors with better growth prospects versus the world of Toys, and some frustrated factory owners in China have moved on during this period of time.

Which leads me onto a major concern – clearly the world reached peak China Toy production 5-10 years ago. The future of Toy Sourcing will be very much multi-hub i.e. not just China anymore for most companies. As some production ebbs away from China, what happens to all that expertise and knowledge accumulated over the past 40 years in production methodologies across a broad array of specialist components and materials? Much of it is likely to be lost alas. Those Chinese owned manufacturing groups which have or will set up manufacturing facilities in other Asian geographies should hopefully retain some of this ‘intellectual capital’, but it is nevertheless a concern, as much of the practical ‘ready to manufacture’ R&D that once was done by Toy companies at HQ in their home countries has been done at no extra cost by factories in China for decades now. Going forward, the process of producing and sourcing Toys is going to get more arduous, and a lot of things we took completely for granted will no longer be automatically fulfilled by factories who might know less than their customers about Toy supply chains for at least a few years if not a decade or more. Frankly it’s going be a really messy period of time ahead of us now.

Our company has been heavily involved in advising clients how to manage the preposterous tariff situation we have found ourselves in recently. In fact, this has been by far the busiest period in the 15 years or so since I set up the company. One key finding from the frenzy of this period is this: factories are more likely to want to work with Toy companies who don’t just flit in and out again every time the wind changes. They are looking for partners who will stick with them (as long as service is good and costs remain competitive). Factories will not rush to work with people who flip flop every time the situation in the world changes. This is more critical than you might think – here’s why: there are far fewer factories for Toy production outside China than in China. So if you want to be able to diversify, it’s a mistake to burn bridges & annoy factories or waste their time. You may really need them at some point. I was caught in the middle of a major U.S. Toy company running a gigantic benchmarking project with no intention of sending any business to factories. After quoting for 20+ SKUs they didn’t give any business to those factories, and the factory now will never respond to or do any business for that factory. Which is a gigantic shame, as the product area is quite specialist and the Toy Co does not have that many alternative options. Duh!

Based on the hundreds of sourcing projects we have worked on, I would estimate that you can find production for around 80% of products or components you need outside China, but you have a lot less choice, so I would strongly suggest to avoid fouling your own swimming pool by annoying factories you may desperately need at some point!

We should also take a moment to think about the people and businesses engaged in Toy production in China. This has been a terribly stressful time for our long-time partners in ‘The Middle Kingdom’. Many have been forced to dump their production forecasts, and even though we should now be back online with the tariffs reducing down to ‘only’ 30%, there are a lot of good suppliers in China now struggling for no reason of their making. We have tried to support our long-term partners and friends in China with projects from outside the USA, but it has not been easy.

The issue our industry now has in facing the rest of 2025 is that the move down to 30% tariffs (for 90 days at least) is probably enough to trigger an avalanche of orders and demand for container shipping capacity. It’s going to be sheer chaos for the next 2 months from here as everybody involved in the chain moves mountains to try to salvage 2025. It isn’t going to be pretty. I notice that some of the stock market listed companies postponed their full year 2025 guidance, and these are the guys with the most diversified supply chains out there. For those companies who have been 100% reliant on China’s production up until this point in time, it’s hard to see how they won’t lose revenues due to pauses in shipping and revised retailer forecasts, as well as due to price increases which will presumably reduce demand via price elasticity. Margin wise by the way, 30% is still likely to be low enough to make shipments happen, but not to make things profitable. Which is likely to curtail investment in new products and people for 2026.

Total catastrophe has been averted just in time, but this is still going to be a really crappy year for a lot of companies. One indicator that companies are expecting a big hit to revenues and or margins is the number of people seeking new jobs having been let go by their previous employers. Via our recruitment service www.ToyRecruitment.com we have visibility of this, and I can’t remember a time in this business when there have been so many really talented and experienced people seeking new roles. If the really good people are looking for new roles you know things are tough.

Originally, I was optimistic about seeing the global Toy market return to growth in 2025, with strong product development by Toy companies, a strong movie slate and several other positive factors. Unfortunately after this whole tariff snafu, I am no longer optimistic. 2025 has now become a year which is all about damage limitation and mitigation for so many companies.

On the brighter side of things though, kids still love Toys & Games. Great content with clear Toyetic appeal keeps on being released. And I guess above all, Toy & Game companies seem to have finally embraced the message I have been harping on about for years: our biggest challenge with Sourcing is not shaving a few cents from the purchase cost, that’s a secondary factor. The fundamental driving factor is ensuring supply, and after the Covid induced shipping crisis and the tariff debacle, companies are finally understanding that success for the future will necessitate diversified supply chains which are flexible and responsive to crises and dramas. Wish you all the best for the rest of 2025 and in the current scramble for viably priced landed products.

MOJO NATION ARTICLES - https://www.mojo-nation.com/

If you don’t know Mojo Nation, you should! It’s an organisation committed to supporting the Toy & Game Designer community. It’s run by some really good people, and if you want an accessible and friendly way to access the creative community in the world of Toys, this is a good place to start. Mojo Nation recently published a couple of articles in which my thoughts were included, along with a lot cleverer and more sensible industry folks:

“It’s not just a game – it’s a platform for experimentation”: Designers discuss 90 years of Monopoly

This article includes my thoughts on the longevity of the Monopoly game brand. Nearly 25 years ago I was the European Brand Manager - having survived my stewardship, I suspect Monopoly can survive anything. Read the article here:

https://www.mojo-nation.com/its-not-just-a-game-its-a-platform-for-experimentation-designers-discuss-90-years-of-monopoly/#

Inventors wear many hats these days… Is considering aspects like cost a vital part of the inventing process? Or can ‘self-policing’ ideas kill innovation?

Here’s another Mojo Nation article I contributed to. Many of the other comments from various industry luminaries are more incisive than my ruminations, but you can check all that out here:

https://www.mojo-nation.com/inventors-wear-many-hats-these-days-is-considering-aspects-like-cost-a-vital-part-of-the-inventing-process-or-can-self-policing-ideas-kill-innovation/

SPIELWARENMESSE, SPIRIT OF PLAY Blog

India’s Domestic Market Opportunity

This article was published by Spielwarenmesse.de. It looks at India’s domestic market opportunity. It’s currently a relatively small market, with a high degree of complexity, but it’s one of few Toy markets in the world offering large growth potential for the foreseeable future. Read on to find out more!

https://www.spielwarenmesse.de/en/mag/markets/indias-domestic-market-opportunity/

PRODUCT CATEGORIES OUR FACTORIES CAN SUPPLY FROM INDIA & VIETNAM:

We act as Sourcing agents covering the following product types from India & Vietnam:

Injection, blow & roto moulded plastic.

Games - Cardboard, plastic & wooden

Plush

Electronic Toys inc. RC

Wooden Toys

Children’s furniture – plastic, metal, wood

Please just drop me a direct message for more information, or visit our Sourcing business website: www.ToyTeamAsia.com

TOY & GAME BUSINESS CONSULTANCY

In the nearly 15 years I have been Consulting for, we have advised 1000+ Toy & Game companies, set up distribution into most major markets and helped to accelerate our client’s growth across the world. For more information on how we can help, check out our services here: www.KidsBrandInsight.com/services

GREAT PEOPLE ARE YOUR BIGGEST ADVANTAGE

Toy Recruitment Consultancy has become one our most in demand services. We have a social and own media platform (including this newsletter) which allows us to directly access c. 25k people in the world of Toys & Games from across the planet, aside from which after 25 years of grind, we know a lot of Toy & Game people across the world.

We’ve successfully recruited for roles in the UK, USA, Korea, HK, China and beyond. Our contact network is truly global…(ok we’d struggle to recruit for you in North Korea, but otherwise we’ve got you covered!).

So if you have key senior roles to fill or if you just can’t find someone qualified for a key role you need to fill, just drop me a DM and I’ll explain how we work/the costs involved or check out our Toy Recruitment website here: www.ToyRecruitment.com

Job Seekers Friday – as part of this work in helping to place good people, I’m going to try (as far as time and workload allows) to promote a new jobseeker every Friday going forward. If you are a job seeker with at least 5 years’ experience in The Toy/Game business and you want me to promote you to my audience of c. 25,000 industry people, please send me a DM & I’ll explain how it works (no cost).

Sign up to our Free Toy Industry Journal e-newsletter for the latest articles, podcasts, trends and insights into what’s going on in the Global Toy & Games business, just click here to sign up: https://forms.aweber.com/form/54/1325077854.htm

This article is copyright 2025 RG Marketing Ltd, all rights reserved. All contributors to this article contributed under a work for hire basis on behalf of RG Marketing Ltd. Please also note, this article was written and published in the United Kingdom.

“Liberation” Day Tariffs: 8 Key Facts To Help You Manage A Tough Situation Better Than Your Competitors In The Toy Trade

Tariffs on Toys?!

Do you need some expert Sourcing advice and consultancy to help you better manage the current terrific tariff crisis in our industry? We have helped 6/10 of the world’s biggest Toy companies with Sourcing. We have worked extensively across Sourcing running global and local studies of available manufacturing options. Our Sourcing services go from one off Consultancy calls costing £500 British pounds / $650 USD, through to ongoing retainer consultancy depending on your needs. More details here: www.KidsBrandInsight.com/services

We should have published this article earlier, but the last few days have been very frenetic with a wide range of our clients seeking my inputs, insights and suggestions. I’ve advised $billion companies through to small one person companies and everything in between this week. This has been one of the most intense few days of my 25-year career. There is a lot to consider and discuss for sure on this topic!

There’s been a lot of bad news and massive disruption in the last few days as the full extent of tariffs imposed by the USA on imports from other countries has been announced. But to be frank, you have already read enough ‘woe is me’ reportage on this. So I’m going to give you one not so bad thing as a start point – it isn’t an issue just your business is facing. Just like the global financial crisis of the late noughties, just like the pandemic, and just like the resultant container price surge leading to massive inflation and a subsequent drop in consumer demand, everybody is facing this challenge.

It's not just that one key factory has upped prices on you, or that one retailer has decided to drop your products and give the business to a competitor. Actually, EVERYONE in the chain is badly affected by this situation and turn of events. Factories everywhere are negatively affected, retailers are going to be badly affected, your business will be affected and so will your competitors, oh, and so will consumers of our products sadly.

So the good news is this – sharp operators manage crises better than slack operators. If you run a good business, a tight ship, with better than average people on your team you can turn this seemingly disastrous situation into competitive advantage by managing it better than they do. The start of managing this situation better than your competitors is to be better informed and more aware of actual realities in terms of options and solutions.

That’s the annoying self-help part of this article done, now let’s review the facts and solutions here:

FACT 1 – TARIFFS HAVE BEEN IMPOSED ON ALL TOY MANUFACTURING HUBS OF SCALE

No leading Toy manufacturing countries have escaped taking a sizeable tariff hit. The table below shows the numbers, but here’s the most critical stats for the Toy & Game biz: China – 54 % tariff, Vietnam – 46%, European Union – 20%, India 26%, Indonesia 32%, Thailand 36%, Mexico’s situation was not worsened by the “Liberation” Day tariffs.

Now one point to be clear on is that the situation currently appears to be quite fluid. It seems to be the case that nothing is quite final. I suspect from what I know of each of the key countries listed here, Vietnam is very likely to offer compromises and is likely to get their rate reduced to some degree. India has seemingly done well, or at least less badly, versus the other key manufacturing countries and China is very likely to respond with comparable measures (more on China below).

The issue for Toy & Game companies here is that it’s not easy or quick to suddenly uproot Sourcing offices, tooling and find new vendors in other geographies, especially when things seem so changeable and never quite tide down.

The bottom line here is that as I have been writing about extensively (maybe even ad nauseum?!) for the last 10 years, Sourcing will require more brainpower, management time and resources going forward as we move from most production being in a relatively confined area in China to production spread out around Asia and elsewhere.

FACT 2 – SOME COUNTRIES HAVE BEEN HIT HARDER THAN OTHERS, AT LEAST FOR NOW

The first major problem we have here is that China has been made close to economically unviable by all the tariffs imposed. As of the end of 2024 at least, China still supplied c. 75-80% of all Toys globally. You can’t replace that amount of production in a decade, let alone in the few months we now have before Toy factories hit peak production for Q4 – it’s hard not to scream AAAAARRRGHHHH at this point.

The second problem is that so far the best alternative solution which has thus risen substantially in the last decade or so is Vietnam. And Vietnam has been really smashed with tariffs, 46% tariffs have been applied, purportedly on the basis of their substantial trade deficit vs the USA. The issue there is that there is no real prospect of Vietnam massively increasing consumption of more costly US goods based on it’s size and shape of economy.

The third problem is that the 3rd most popular country for Toy manufacturing in Asia has so far been Indonesia which was hit with 32% tariffs.

And finally, India has done comparatively well, but nevertheless still has 26% tariffs via this round. This seems like a surprisingly positive result for India, and Prime Minister Modi can definitely take some credit here for: 1. Being strong enough and charismatic enough to win President Trump’s respect. 2. Being quick to proactively offer concessions in the areas most valued by President Trump 3. To make the case that India’s economic strength is no real threat to the USA, but a stronger India could act as a strategic balance to China’s power, influence and impact in Asia from a geopolitical perspective.

I also think a general point to make is that President Trump does appear to be open to negotiation with strong leaders who show due deference and who are willing to offer concessions. That should be a template for any country frustrated by these tariffs.

FACT 3 – UNCERTAINTY IS OFTEN WORSE THAN BAD CERTAINTY, BUT THINGS COULD GET BETTER IN SOME CASES…

One of the most damaging impacts of the current tariff drama is the uncertainty it drives. Investing in new industrial capacity is not a quick decision to make normally, and it’s also not likely to be implemented very quickly. If you are a manufacturing company for Toys in Mexico right now, how likely are you to invest in new production capacity right now…? Probably not very likely at all.

If you are a Chinese Toy manufacturer, you probably haven’t looked at investing in new capacity for a while, but even your decisions to invest in Vietnam, Indonesia et al are now on hold.

For Toy & Game companies, today Vietnam looks like a much worse option than it was a week ago, but a successful lobbying/negotiation approach by the government of Vietnam could secure a 50% reduction in tariffs at which point Vietnam becomes one of the best available options. That’s a ludicrous situation to put industries and companies in, when these are the companies that employ the most people and that contribute the most to the US economy in general, but also pay a lot of taxes to government.

My analysis, conversations with people in the know in Vietnam, suggests that the Vietnamese government will definitely try to negotiate reductions in the tariff rate.

India may negotiate further reductions. One of India’s defining national characteristics is to always find workarounds to hurdles and to negotiate effectively, and I suspect there is more to come there too.

The problem for now though is where should we place manufacturing orders right now to get out inventory for the back end of the year, and of course that is a complex calculation right now.

The best solution we can guarantee right now should surely be based on diversification and spreading risk, at which point we’re back to needing to make better decisions and find better solutions versus our competitors as we all face up to the big challenge we have here.

FACT 4 – EVERY ACTION HAS AN EQUAL AND OPPOSITE REACTION AKA CHINA IS UNLIKELY TO CAPITULATE

I have written previously at length about how Mexico and Canada are very likely to compromise and seek least worst resolutions of the objections of President Trump to the trading status and balance between those parties. As above, India & Vietnam are also likely to negotiate and should therefore mitigate some of the impact.

I have studied China’s Toy sector extensively, but I have also studied at length China’s history, politics and governing body/institutions. Nevertheless I’m still an armchair expert at best on China’s politics and statecraft, but the one thing that seems very evident is that any country choosing to aggressively compete with China will be met with a strong, strategic and roughly proportionate reaction. China as a country is very deliberate on strategy, decisions and actions taken. So it is no surprise to see that China’s counter measures to “Liberation” Day tariffs was to hit back with an equal % of tariffs imposed, plus some other measures targeting areas likely to be most painful to the U.S. in general, but also specifically to Trump’s heartland supporters.

And here’s where things look darkest from where I’m sat – China’s factories are going to aggressively chase business outside China, I am already overwhelmed with factories from China seeking our help with this. But the dark part of this is that reduced orders will drive many Chinese factories out of the Toy & Game business. And the other upcoming hubs are nowhere near ready to pick up the slack. There is just not enough qualified production capacity available elsewhere.

The other issue with losing Chinese Toy & Game factories is the irretrievable loss of expertise, knowledge and capability. It has taken decades to build up all that expertise, and it could be lost in a heartbeat – that would be bad for our industry overall.

FACT 5 – INFLATION WILL RISE AND CONSUMER SPENDING/DEMAND FOR OUR PRODUCTS LOOKS LIKELY TO DROP

Based on all the Economic experts, analysts and mouthpieces I have studied, there seems to be no practical way that these massive tariffs won’t cause a significant upsurge of inflation in the USA, which will almost inevitably lead to at least a short term drop in demand, and then a resulting loss of revenues for Toy & Game companies. Just as demand seemed to show signs of strengthening again, it looks likely to diminish. Ordering commitments will become even more conservative, and we could be looking at a couple of years of really hard trading ☹.

FACT 6 – NEARLY EVERY TOY COMPANY SHIPS TOYS TO THE USA, OR ASPIRES TO…BUT THE TARIFFS DON’T APPLY TO IMPORTS INTO OTHER COUNTRIES, SO FINDING AND FOCUSING ON OTHER MAJOR OPPORTUNITIES WILL BE KEY TO REDUCE THE HIT ON SALES INTO THE USA

Even small international companies are normally working on selling into the world’s biggest market. In many cases, a tiny chunk of market share in the USA is hugely significant to global revenues. If demand diminishes in the USA, we have no option but to seek alternative sales growth opportunities where these tariffs are irrelevant. But that isn’t easy, and our competitors will be doing the same thing, so competition will be strong. Moreover though, any incremental international business is likely to be insignificant versus the size of opportunity in the USA.

FACT 7 – THE TARIFF SITUATION IS A SHORT-TERM SHOCK, BUT THERE ARE SOME LONG-TERM TRENDS

Here’s one of the key areas of potential advantage. We couldn’t have predicted the scale and impact of these latest tariffs being imposed, but we do know things like China chose to move away from low end manufacturing 10 years ago with their 2025 vision. The government clearly stated publicly, and in private to some major Toy companies, that their economy was on a trajectory to make real cars on the scale that they have historically made Toy cars. I have been writing about this for more than a decade, and the big Toy Cos are now significantly diversified, with some Top 5 global companies down to as little as 40% of their manufacturing in China now. They needed to be ahead of the curve, because we can move a coupla $million quickly, but to move a $billion manufacturing spend takes a decade, or more.

But above all take this current situation as a wakeup call – China has changed, regardless of what you want. The country we went to en masse for our manufacturing decades back in time went from hundreds of millions of starving agrarian peasants to a factory production line wage of as much as $1000 per month today, versus c. $200 USD in India for example.

So, wake up and smell the coffee, you need to diversify your manufacturing anyway, regardless of the tariffs. Whichever country has the worst US tariff rate today, should not become the major knee-jerk driver of your Sourcing choices, you need to apply STRATEGY here, not knee-jerk reactivity.

I have spoken to some Toy company CEOs who have revenues in excess of $100m USD. And they were adamant that they would stay in China as everywhere else wasn’t ready, was too much hard work and China was still delivering. That’s what I call the ‘Boiling Frog’ mindset, you don’t realise you are being boiled alive if the temperature only goes up a few degrees at a time. China has been a brilliant friend to the Toy business, and it still will, but it’s place as the only primary hub for Toy production are over, so you need to diversify anyway regardless of the tariffs.

FACT 8 – WHAT CAN WE ABSOLUTELY COUNT ON?

The last fact here is that there are some things we can absolutely count on here, and that certainty should drive more of our thinking and actions than the latest headline and change in tariff rate.

We know that kids love Toys & Games, and that parents like buying some types of our products. We know that there is a more diverse distribution matrix available to us now, and that it has never been easier to sell products to consumers than it is now, albeit it is very competitive. We also know that we need to diversify our Sourcing regardless of short-term shocks like the current scenario.

CONCLUSION: THE IMPACT OF LIBERATION DAY TARIFFS GOING FORWARD & HOW WE CAN BEST MANAGE

I have had the sheer joy & privilege of working in this industry since the start of this millennium. In my 25 years in this glorious business the 5 biggest events/impacts of macro level events (in rough timeline order) have been:

1. The introduction of the €uro currency making most of Europe’s economy easily accessible.

2. The growth of the internet and digital space.

3. The global financial crisis.

4. The COVID-19 pandemic, resultant container shipping cost crisis and resultant inflation/drop in consumer demand.

5. “Liberation” Day tariffs.

Maybe I missed something equally critical and impactful, and I’m happy to add to this list if something is missing, but there is no doubt that the recent slew of terrible tariffs is up there with the events of most impact and disruption in 25 years.

It is likely that much of the published tariffs will be rowed back, but much of it won’t be. In particular, China’s inevitably resilient response is unlikely to see huge drops in the tariff rates from China unfortunately. This will hurt a lot of people and businesses. I feel really bad for the factory teams I have built my career on working with, some might go out of business, although I and they will fight hard to prevent that, but this all seems like a lot of pain, with no obvious gain from where I sit as a non U.S. resident helping Toy & Game companies navigate this current crisis.

As for the likelihood of a huge growth in manufacturing in the USA, if it was still April 1st, I might spend more time on that ‘spoof’, but let’s keep it real here. I hope some U.S. citizens, companies and sectors do see growth after all these tariffs are applied, but alas the lost jobs elsewhere will be on a greater scale in my opinion – feel free to agree or not with that, but either way the only winners here will be those who manage a freakishly hard situation better than their competitors.

SOURCING CONSULTANCY – CAN WE HELP YOU TO BETTER HANDLE TOUGH TIMES?

We have helped hundreds of companies assess their Sourcing function, find and validate new factories and better manage their budgets, in some cases saving many millions of $ on manufacturing spend. Can we help your business better manage this current tariff driven Sourcing crisis? As you would expect, we are frenetically busy on this front right now, but our mission is to help and support Toy & Game companies to achieve better results, so we will try to make ourselves available to help you as long as you understand we offer a professional i.e. paid for service.

Our Sourcing services go from one off Consultancy calls costing £500 British pounds / $650 USD, through to ongoing retainer consultancy depending on your needs. More details here: www.KidsBrandInsight.com/services

GREAT PEOPLE ARE YOUR BIGGEST ADVANTAGE

Toy Recruitment Consultancy has become one our most in demand services and our primary mission is servicing the needs of Toy & Games companies. We have a social and own media platform which allows us to directly access c. 25k people in the world of Toys & Games from across the planet.

If you have mid level or senior roles to fill, if you just can’t find someone qualified and if you need help to recruit overseas – that’s our sweet spot, just drop me a DM and I’ll explain how we work/can help or check out our Toy Recruitment website here: www.ToyRecruitment.com

This article is copyright 2025 RG Marketing Ltd, all rights reserved. All contributors to this article did so under a work for hire basis on behalf of RG Marketing Ltd. Please also note, this article was written and published in the United Kingdom.

#53 Why Trump's Tariffs Are Bad For The Toy Business & What You Can Do To Mitigate The Impact...

There is no doubt that we are living in very ‘interesting’ times here. The second Trump administration seems to have torn up all the rules of the international rules-based order, seeking confrontation with both friend and foe alike. This newsletter article will take a look at two major areas of the Toy & Games business which will be significantly affected by both the threat and the reality of Trump’s tariffs.

THE EFFECT OF TARIFFS ON TOY CONSUMPTION IN THE WORLD’S BIGGEST TOY MARKET

In 2023, Toy sales dropped by 8% in the USA. That’s a massive drop when compared with historical ups and downs. In the 25+ years I have been in this industry 8% down was the worst market performance in the USA by far. Even during the global financial crisis things were not that tough – the biggest decline I can find, even during the financial crisis was 6%, which bearing in mind how tough things were then, is not actually that bad. But 8% represents a big drop off. And of course that drop off was caused by INFLATION. Coming out of the COVID pandemic, shipping costs saw massive rises, and a host of other factors contributed to the first double digit inflation most of us have seen in our working lifetimes. Consumers HAD to stay lower down Maslow’s hierarchy of needs i.e. they had to choose paying for shelter and heat over the latest cult action figure or doll.

Inflation drastically curtailing consumption is not distant history, we lived this recently. Therefore we would hope that inflation would be avoided to keep economies flowing. Alas, the imposition of blanket 20% tariffs on goods from China, and potentially 25% on goods from Mexico are clearly going to have an inflationary effect. The fact that there is any confusion about this is befuddling. If it costs more to import than it did before, clearly prices will have to rise. Maybe factories & Toy companies can swallow a couple of points each, but there is no way they can absorb 20% and remain profitable enough to reinvest in new products for next year and the year after that. OEM factory margins are not high, so 1-2% would be a significant cut. Retail profits can be quite thin anyway, Walmart reported operating income (aka profit) for fiscal year ending Jan 2025 of 5.2% - that doesn’t leave a lot of space to play with.

There is still some uncertainty as to what tariffs will be actually applied eventually, as the administration flip flops back and forth on the level of tariffs they threaten to apply...but we don’t have long before we hit peak production for 2025, and while there is clearly some toing and froing over tariffs on Mexico and Canada, it seems much less likely that tariffs will reduce on China. Whereas Canada & Mexico will inevitably work very hard to minimise the impact of tariffs on their economies, their lesser economic and military strength will see them work very hard at befriending Trump and his team and will likely see these close neighbours make some necessary if hard to swallow compromises to minimise the negative impacts of tariffs.

China is a totally different kettle of fish. China sees itself as a strategic competitor to the USA. It is unlikely to capitulate, instead, as we have already seen it is likely to try to meet strength with strength by counter tariffs and by making access to China more difficult and less lucrative for U.S. companies. And of course, the reality is that c. 80% of all Toys are still made in China, so that means that the majority of Toys shipping into the USA in 2025 will cost more based on the current status at the time of writing.

Alas I can’t see any way out of that situation under the current administration. We’re almost definitely going to see price inflation affecting Toys in 2025, which as per the laws of elasticity will undoubtedly impact consumption. It’s very hard to quantify the effect of this, but whereas I was previously predicting mid-level single digit growth for the U.S. Toy market in 2025, we can now expect that to be lower.

The frustrating part of this is the lack of strategy, time to plan for change & clear purpose of these tariffs vs the clear fact that they will hurt sales and consumption. Normal everyday American people will be paying for these tariffs alas. I heard a Congress man on a podcast this week talking about walking past derelict factories in mid-America which had left depressed and impoverished communities behind. His view was that tariffs can somehow redress these depressed communities and bring back those long-gone manufacturing jobs. But the reality is that if you look at the macro picture of the American economy vs chasing easy PR wins from particular elements of the electorate, America’s economy has fundamentally and probably irrevocably has changed – by driving price inflation through tariffs, what happens to all those jobs at Walmart (employing c. 1.6million people in the USA), Target (400,000), Amazon (c. 1.6m) and on and on for other retail chains. Don’t those jobs and communities matter?

It’s not just retail though, what about Toy company jobs – don’t they matter? There are more than half a million people working in the Toy business in the USA, and beyond that in consumer products, the phone business, computers and so on there are many millions more jobs. Just like the rest of the world, America’s economy evolved, and those manufacturing jobs where America is competitive remain, and those which don’t have moved overseas, but better paying jobs have been created higher up the value chain – isn’t that what countries and citizens should aspire to?

I’m not an economist, but all the above appears to be patently true if you read a few economists who are well regarded. But let’s not just rely on the opinion of an economically illiterate Toy guy like myself, let’s bring in the opinions of the great and the good:

"If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them".

Adam Smith – (I think he might know a bit about economics)

“Over time they (tariffs) are a tax on goods. I mean, the tooth fairy doesn’t pay ‘em!”

Warren Buffet (current net worth built by financial investing, $155bn)

· “Over the past 200 years, not only has the argument against tariffs and trade barriers won nearly universal agreement among economists but it has also proven itself in the real world, where we have seen free-trading nations prosper while protectionist countries fall behind.

America's most recent experiment with protectionism was a disaster for the working men and women of this country. When Congress passed the Smoot-Hawley tariff in 1930, we were told that it would protect America from foreign competition and save jobs in this country—the same line we hear today. The actual result was the Great Depression, the worst economic catastrophe in our history; one out of four Americans were thrown out of work.”

Ronald Reagan

One final thought here from - if these tariffs are an attempt to protect American manufacturing jobs, then the sentiment is understandable on one level, and it's easy to see how that aim will find populist appeal for certain audiences, but honestly, how many Americans want to work on Toy production lines?

Have any of these politicians visited Toy production lines? How many American workers want to spend 8 hours doing tedious repetitive work like adding one screw on the same product thousands of times a shift? If someone lives in a developing economy where life is much harder, and where jobs are hard to come by, then these jobs might be the best option, but really, I would like to know what percentage of modern Americans would last a week on a Toy production line. I have spent a lot of time visiting Toy factories, and I know for a fact I would struggle to last an hour working on the production line.

For those people in developing countries where life is hard and working conditions can be arduous and unsafe, these are often the best available jobs, because working conditions are protected by the ethical audit requirements our industry rightly insists on, but the idea of the average American 20-year-old wanting to work on a Toy production line is really a total joke! Surely these politicians should be encouraging people to aspire higher than that anyway, and they should acknowledge reality vs populist cheap vote chasing - cheap goods allow for more employment in upstream roles, and that’s a good thing by most measures!

THE EFFECT OF TARIFFS ON TOY SOURCING & MANUFACTURING

“Tariffs are actually…an act of war, to some degree.” Warren Buffet

It’s possible that the tariffs will subdue Toy consumption to the scale of a few percentage points in 2025. This would not be great, but it’s also not catastrophic. However, one much more dramatic impact of the tariffs will be the acceleration of Toy manufacturing moving out of China. My guesstimate is that China lost c. 10% of the world’s Toy production in the last decade to other countries. But the 20% tariffs on goods from China entering the U.S.A., if they stay in place, will accelerate the ongoing process of geographic diversification of Toy manufacturing. There are longer term trends making this shift an inevitability anyway, we have written extensively about this elsewhere so won’t labour the point for now – you can watch this video if you want more on that:

https://www.youtube.com/watch?v=ZzvMbGfGE00&t=923s

But tariffs are accelerating this trend of production ebbing away from China in two ways:

1. Strategic - By creating uncertainty and unpredictability, the current round of tariffs and threats of tariffs increase the need among more strategically minded companies to diversify and spread risk so there are fewer eggs in more baskets in uncertain times

2. Opportunistic/knee jerk – currently China is in the tariff spotlight, and as the major global power competitor to the USA is clearly going to be a major focus throughout the Trump administration, and then who knows what happens after that. I don’t remember President Biden rowing back many tariffs on China. So far other Toy producing nations in Asia have not had tariffs imposed, although there have been some threats. I suspect that the furore and diplomatic noise and friction caused with regards to Mexico, Canada & China is enough for the Trump administration to focus on. Important Toy production hubs like Vietnam may have trade imbalances with the USA, but the country is not that strategically important and may fall under the radar unlike China which will be in the headlights throughout. India may also fall under the tariff radar, particularly because the USA needs India to be strong to counter China’s strength in Asia. The reality though with this administration is everything could change overnight, but so far, our Sourcing Consultancy has seen massive uptick in demand for Vietnam, India and anywhere else away from the metaphorical ‘eye of Sauron’ on tariffs.

Change always brings with it the opportunity to lose and to gain. One area companies could focus on is Chinese factories targeting Europe more than they have historically, as the EU has a less aggressive outlook towards China. Moreover, with the apparent rolling back of the U.S. security blanket for Europe, we may see trade flow more freely between the EU and China as Europe inevitably considers building more consistent partnerships.

FACTORIES WE REPRESENT – INDIVIDUAL FACTORY PROFILE

Our company provides Strategic Sourcing Consultancy, but we also rep factories (we only get paid by one side of the deal so we can operate ethically). We’re going to run through profiles of our key factory partners across the next few newsletter instalments. There is no particular order, so factories, please don’t be offended if you aren’t first!

GAMES FACTORY IN INDIA

We represent a Games factory in India which manufactures both cardboard and plastic Games for major global players, as well as art & craft kits and books. They have all the necessary audit compliances inc. Disney FAMA, ISO 9001: 2015, FSC, RBA. To date the company has produced more than 200 individual Game titles for customers across the Globe. Due to location in India, the factory is both diversified from China for companies seeking to diversify supply chain risk, but also due to low labor costs (c. $200 per month for production line worker), costings are at worst competitive, and in many cases offer a tangible cost advantage for customers.

For more info on this factory, please get in touch via the 'Contact' page. (Please note this factory is set up for quite high volumes, so it’s probably not a fit for start-ups).

TOY & GAME BUSINESS CONSULTANCY

In the nearly 15 years I have been Consulting for, we have advised hundreds of companies, set up distribution into most major markets and helped to accelerate our client’s growth. For more information on how we can help, check out our services here: www.KidsBrandInsight.com/services

GREAT PEOPLE ARE YOUR BIGGEST ADVANTAGE

We have a social and own media platform which allows us to directly access c. 25k people in the world of Toys & Games from across the planet, as well our offline relationships of course.

So when a company asks for help in finding their next key hires, it’s normally easy and quick for us to get interested applicants, but then our clients also know that applicants are screened by someone who understands the business intimately, and can spot obvious B.S. – for example, on a recent screening interview we asked a candidate to talk me through how he managed a sales meeting with retailers, and having sat in those meetings ourselves, we assessed his responses not from what sounded good in an interview, but from what we knew would work most effectively having been grilled by the same retailers.

So if you have key senior roles to fill or if you just can’t find someone qualified for a key role you need to fill, go to www.ToyRecruitment.com for more on how we help Toy & Game companies to find great people.

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