Crazy Aaron’s Puttyworld CEO and Founder Aaron Muderick, whose company has been hit by US tariffs on raw materials, fears the US-China trade war could also damage his growth prospects in the Chinese consumer market. (Johannes EISELE)
New York (AFP) – The US-China trade war has dealt a glancing blow to American toys, hitting putty and arts and crafts items, while sparing superhero action figures, toy cars and most best-selling offerings.
Yet uncertainty about the trading relationship between Beijing and Washington hangs over this weekend’s Toy Fair, dampening the festive mood amidst giant balloon cartoon figures and karaoke cars as some 30,000 industry representatives survey the latest and greatest in play.
China manufactures around 85 percent of the toys and games sold in the United States and is also home to a growing consumer market estimated to overtake the US play market in 2022.
Aaron Muderick, founder of “Crazy Aaron’s Puttyworld,” a Pennsylvania company, has seen profits hit by US tariffs on raw materials to make his colorful putty and on steel cans, which bear the made in the USA mark.
But Muderick is most worried about losing momentum in the booming Chinese market where he has worked to establish distribution channels and build brand identity.
“We’ve invested a lot of time and dollars,” he told AFP. “If it creates a market where the product is not welcome, where there are retaliatory tariffs that make it impossible for me to reach that consumer, then I lose.”
About 40 Chinese booths are displaying with China Toy & Juvenile Products Association, including companies selling stuffed bears, trampolines, magnetic building blocks and flashing beads.
“Some members feel uncertain, but the business is so far going okay,” said the group’s president, May Liang in an interview.
Company representatives have reported no drop in interest among their US buyers, said May, who expressed skepticism that the US would impose broad tariffs on toys.
“We believe toys are really consumer-focused especially at holiday season, so we think toys should not be on the tariff list because it will harm consumers.
“But we feel we should closely watch it,” she added.
– Bigger tariffs ahead? –
A trip to a US toy store shows the near-ubiquity of “Made in China” on any number of gadgets, games and super hero dolls, but the country’s playworld dominance sometimes surfaces in unexpected ways.
For example, youth-oriented books on display by the Quarto Group at Toy Fair about black role models like Nelson Mandela and gay and lesbian icons such as Freddie Mercury were printed in China — another testament to the country’s competitiveness.
The toy industry dodged a bullet last September, when finished toys were left off the list of expanded US tariffs.
Toy Association Chief Executive Steve Pasierb said such broad tariffs look unlikely at this point US President Donald Trump has spoken more optimistically of a trade deal with Beijing.
But “this is a tweet-driven scenario we’re in here… so you could see that come back,” added Pasierb, whose association, the hosts of Toy Fair, has aggressively lobbied on trade.
Toy industry consultant Richard Gottlieb considers US tariffs on finished toys “highly unlikely” and doesn’t expect the current trade conflict to fundamentally change China’s position in US toys.
“People think we make it in China to make more money,” he said. “The reason is because if we made it America, it would be five times more expensive and people wouldn’t buy it.”
But the US industry is still worried about Trump administration plans to lift tariffs from 10 percent to 25 percent on raw materials. That increase was scheduled to take effect March 1, but Trump on Friday reiterated that he could delay the increase if a deal is close.
Companies have mostly eaten the hit from a 10 percent hike, but a 25 percent tariff would be much more painful.
Putty maker Muderick, for example, saw 2018 profits hit by the tariff on steel but suffered no real hit last year from tariffs on rubber silicone because he bought supply ahead in anticipation of the levy. But he expects more of a profit hit in 2019.
Some toymakers may be in long-term contracts with retailers that lock in price.
“If it goes to 25 percent, companies will go out of business, or they will cut back jobs,” said Neil Helfand, an attorney specializing in trade whose clients include toy companies.
– US toymaker rebirth? –
The trade conflict has given impetus to major toy companies to shift more manufacturing to other markets, a trend that was already underway due to rising costs in China.
By 2020, Hasbro plans to source 60 percent of its toys from China, compared with 69 percent in 2018 and 86 percent in 2012, with the company shifting more production to the US, Mexico, Vietnam and India, Hasbro executives said Friday.
Indonesia, Malaysia and Vietnam have all enjoyed double-digit annual toy manufacturing growth between 2012 and 2017, according to data from Euromonitor International, a market research provider.
Still, those three countries plus Thailand accounted for just nine percent of China’s toy output as of 2017, said Euromonitor senior industry analyst Justinas Lasinskas.
Significant additional production is “unlikely” in the United States, “where production would be still more expensive even with the introduced tariffs,” Lasinskas added in an email.
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