Here comes Santa Claus… and trade tariffs

Here comes Santa Claus… and trade tariffs

As Christmas approaches, we take a look at how the US-China trade war may impact the import and export of toys

According to the US Toy Association, around 85% of toys sold in the US are made in China. So far, the list of goods that will have tariffs applied by the US and China has not included toys, so we can’t accuse any of the political leaders of being a Grinch, but the trade war is likely to impact the toy industry. From rising component costs to households squeezed by higher prices on other items, we may see some changes by this time next Christmas.

Are toys likely to fall under the remit of the trade war?

The trade war has cooled somewhat in recent months as a détente has been reached. However, neither side is showing signs of backing down. If the trade war continues to escalate then toys may fall into the remit of any future tariffs on goods from China. The trade war may not directly impact the cost of toys in terms of tariffs, but electronic components are within the remit of the current dispute. This may mean that the current value of the greenback may be offset by the tariffs on components including microchips and motors; electronic toys are very popular and found in many interactive toys and games. It’s not just high tech toys that will feel the pinch from the trade war; toys that require fabric are another example of how current tariffs indirectly contribute to higher costs in toy manufacture.

Squeezing the costs

The US dollar has been strong this year; this is great news for importers but it makes American exports more expensive. Toy producers may find themselves under pressure to reign in their prices, or find that competitors for elsewhere may start to build market share in territories overseas. The US toy industry is currently still reeling from the closure of Toys R Us, and the addition of what could be up to 25% on the cost of production is likely to translate into higher prices for consumers. 

Disposable income may decline

Even if toy manufacturers can navigate the current situation and avoid falling into the remit of a future round of tariffs, it’s clear that prices are going to rise in the areas currently targeted by the trade war. If families are facing higher costs for other goods, then it’s likely that their budget for Christmas may decline as a result. Middle and lower income Americans would be the most affected because they spend more of their disposable income on consumer goods and early estimates suggest that the trade war may wipe out any gains made by the recent tax cuts. By next Christmas, many families may find themselves priced out of the purchase of many toys, which may lead to a shift in buying patterns. 

Managing the costs

While global trade is out of the hands of toy manufacturers and retailers, there are ways to manage international costs. Our team works with businesses in the US toy industry to manage the risk of currency payments. In addition, our secure online platform allows for fast efficient international payments to support good relationship management with overseas partners. You may not be able to ask Santa Claus to make sure the trade war ends, or a fixed exchange rate to accurately forecast your costs, but a currency specialist can provide guidance and support in this new commercial landscape. 

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