The US toy industry is experiencing the worst crisis in history as tariffs on Chinese imports skyrocket to a staggering 145%. This dramatic increase has led companies, like Basic Fun! as well as MGA Entertainment, to take a hard look at their manufacturing approach. China remains the United States’ largest source for toys, shipping about 80% of total US toy imports. Even in that context of special treatment, they are still the main option for American consumers. Last year, the US imported almost $17.7 billion worth of toys. Of that total, an incredible $13.4 billion of it originated in China.
Meanwhile, the industry still wrestles with increasing costs and a tumultuous economic environment. Yet the cost and difficulty of moving production out of China to friendlier pastures is becoming painfully obvious. Even with today’s tariffs, making toys in the US is still prohibitively expensive. It continues to be less expensive to just maintain the status quo with operations in China. This perfect storm of circumstances has led CEOs and CMOs and toy industry bigwigs to warn of the apocalypse on America’s toy industry.
The Challenge of Domestic Manufacturing
CEO Jay Foreman underscored the difficulty in moving toy manufacturing back to the United States. As he noted, making use of China’s ample infrastructure is a whole lot simpler than starting new manufacturing operations from scratch. Foreman stated, “There are things you aren’t able to make (in the US) physically, or produce here, and toys are one of those.” It’s no small feat to set up factories. On top of that, labor shortages in the US add to the challenges of even shifting production domestically.
Basic Fun!, which is a 46-year-old, established family and employee-owned company, is uniquely positioned to feel the impact of these tariffs. Foreman shared why the issue is so dire. It went from being an issue to being a catastrophe for Basic Fun! and really our whole industry,” he added. This combined scenario puts upward pressure on the prices of toys and downward pressure on the quantity available in the market. It threatens the existential future of our industry.
Rising Costs and Price Increases
These surprise recent tariff increases have forced some businesses, such as MGA Entertainment, to face difficult pricing decisions. CEO Isaac Larian made news yesterday with his big announcement. His business alone will need to raise prices by the high double digits due to the tariffs. “We have no choice but to increase our prices by high double digits,” Larian remarked, illustrating the direct impact of tariff rates on consumer costs.
Further, MGA’s dependence on Chinese manufacturing is clear, as the majority of their production still sits firmly in that nation. MGA builds most of its iconic Little Tikes line in a factory in Ohio, allowing the firm to market its products as Made in America. As Larian emphasized, Chinese retaliatory tariffs on American exports are turning future production here into a layoff risk. He stated, “The life of my business, 46 years, is on the line.”
The Future Landscape of Toy Manufacturing
With recent conflict and COVID-related manufacturing disruptions putting pressure on supply chains, many manufacturers have started to look for China’s lower-cost substitutes elsewhere. Greg Ahearn, the interim president and CEO of The Toy Association, said that companies started looking for alternatives in some cases in the 1980s. Unfortunately, this trend persisted into the early 1990s. He first admitted that manufacturing actually does occur in the US. It largely misses the mark because it zeroes in on products that are ripe for full automation.
Policy Principal Ahearn pointed out that China’s lower labor rates are a significant factor in driving down production costs. This, in turn, produces lower prices for consumers. He emphasized that a vast number of businesses cannot risk uncertainty even one quarter out about tariffs. This confusion strikes right as their products arrive to the US. Foreman echoed this sentiment: “We cannot afford to take the risk of not knowing what the tariff will be when the goods land.”