For America’s toy-makers the next few weeks are usually the most wonderful time of the year. But thanks to Donald Trump’s seemingly ceaseless trade wars this year is one of the most worrying in living memory.
“It’s absolutely the nightmare before Christmas,” said Jay Foreman, chief executive of Basic Fun!
Just days from now the Florida-based toy-maker, whose licenses include Tonka, Care Bears and Baby Shark, will learn whether or not the president will turn out to be the Grinch that stole Christmas.
On 15 December the Trump administration is set to impose another $155bn of tariffs on Chinese-made products imported to the US. Previous rounds of tariffs have mainly hit industrial goods and America’s farmers. This time the tariffs will include cellphones, laptops and tablets, office and schools supplies, Christmas ornaments, some clothing – and toys.
Foreman is furious and he’s not alone. Rick Woldenberg, chief executive of Illinois-based Learning Resources, maker of hands-on educational toys like Botley the Coding Robot and Spike the Fine Motor Hedgehog, can’t quite believe what is happening.
“It’s December 4 and I don’t even know how I’m going to start paying duties at 15% in 11 days. This is incomprehensible to me,” he said. “I’m involuntarily part of a reality TV show now and I can’t get off the stage. How did this happen?”
He predicts that the cost of the tariffs will wipe out all of 2019’s profits and put the jobs, bonuses and raises for his staff at risk.
Toy-making is a tough business. Margins are tight, consumers are extremely price sensitive and the toy makers are still reeling from the closure of Toys R Us, their largest year-round retailer. Trump’s trade war will be the death knell for many businesses, Foreman predicts. “Many companies will go out of business,” he said.
Messing with the toy sector isn’t child’s play. The industry’s annual total economic impact is $110.9bn in the US and it employs 691,263 people (more than three times more than the mining industry) generating more than $35.1bn in wages and $14.98bn in taxes, according to The Toy Association, which is lobbying hard against the tariffs.
Negotiations between the US and China continue and there is a possibility that the latest tariffs will be scrapped. But Trump’s mercurial negotiating style has already done severe damage. In the last few weeks both sides have said talks were nearing agreement but Trump has warned he may not do a deal until after the 2020 election.
The unintended consequences of the trade war are wide reaching and still being assessed economically, politically and even environmentally.
In Brazil the Amazon is on fire in part because farmers are burning it to plant soy beans to sell to China, replacing US supplies now subject to tariffs. Economic growth in China has stalled. In Wisconsin, a state that helped hand Trump the White House, dairy farmers lead the nation for bankruptcies.
While Trump has argued the tariffs pay for themselves by adding money to the US treasury, Tariffs Hurt the Heartland, a coalition of trade associations and agriculture commodity groups, calculates the trade war costs Americans $810 every second – more than $38bn so far.
The industry is living with a sense of “impending doom”, said Foreman. He compared the situation to the hurricanes that annually threaten his home state of Florida. “It feels like we’ve got this hurricane of trade talks and friction and negotiations that have been lingering for a year or more.”
More infuriating still is Trump’s attitude. “Badly run and weak companies are smartly blaming these small Tariffs instead of themselves for bad management,” Trump tweeted in August. “Excuses!”
If the Fed would cut, we would have one of the biggest Stock Market increases in a long time. Badly run and weak companies are smartly blaming these small Tariffs instead of themselves for bad management...and who can really blame them for doing that? Excuses!
— Donald J. Trump (@realDonaldTrump) August 30, 2019
“It’s just galling coming from a guy who’s bankrupted so many businesses in his career,” said Foreman. “It’s the first time I’ve ever heard a Republican president criticize small businessmen. You know, entrepreneurship is supposed to be the backbone of this country. And when you have a president that’s working against entrepreneurs, it’s really shocking.”
Like many US manufacturers the toy industry is heavily reliant on cheap Chinese labor. About 70% of US toys are made in China – Basic Fun’s figure is closer to 90% – and the industry has worked for decades with suppliers to improve quality control and better working conditions at the plants they use. Trump’s suggestion that manufacturers move production back to the US strikes manufacturers as ridiculous.
With US unemployment at 50-year lows and Trump sealing the border to low-paid workers from Latin America, there is no way to make affordable toys in the US, said Foreman.
“We don’t have the labor here that is interested or willing to do the kind of work that you need to do to make toys, to paint eyeballs on Barbie dolls, to stitch up stuffed animals, to assemble action figures,” he said.
Moving to India or Vietnam would mean more costly safety checks and who is to say Trump won’t decide to impose tariffs there too, or remove the Chinese ones after the toy companies have shifted production.
Nobody is winning in this trade war. According to a recent JP Morgan study all the proposed tariffs will cost the average American household $1,000 per year. The knock-on effects will be felt throughout the economy, said Woldenberg.
“We pay taxes, we pay salaries and benefits that matter a lot to the people that work here and the wages that we pay are well above Illinois’s average pay. These are good jobs. And all that’s endangered,” he said.
Even if Trump’s latest threat to hold off on a deal proves to be yet another bluff, the damage is being done.
“I got to spend money to keep the business healthy, to make contractual commitments to lots of different people,” said Woldenburg. “But you can’t when the basic rules of the world are being decided at the last minute over and over again.”