The surprise escalation in Trump’s trade war with China was announced via Twitter.
President Trump tweeted that despite US representatives returning home after positive talks in China, “the US will start, on September 1st, putting a small additional tariff of 10% on the remaining $300b of goods and products coming from China into our country. This does not include the $250b already tariffed at 25%”.
The new round would cover a wider range of consumer goods, from clothing to electronics – and toys.
Trump later told reporters that the tariffs could even be increased at a later stage: “It can be lifted in stages, so we’re starting it at 10% and it can be lifted up to well beyond 25%,” he explained.
The announcement shocked financial markets, sending the Dow Jones Industrial Average down nearly 200 points.
Federal Reserve economists forecast in May that average US household will be left $831 (£656) worse off as a result of the most recent tariffs on Chinese goods, even prior to Thursday’s announcement.
“These measures, if they go through, will substantially impact American consumers, including their ability to gift quality toys to their children during the holidays,” Hasbro told CNBC on Friday. “If the proposed tariffs are put in place, Hasbro will have no choice but to pass along the increased costs to our US customers by pricing our products to address the tariffs.”
During Hasbro’s earnings call last week, the company said it was working to reduce its reliance on China for making its toys. China has long been an important country for manufacturing toys: 67% of Hasbro’s products sold in the US came from there last year. “We’re increasingly spreading our footprint and adding new geographies for production globally,” Hasbro CEO Brian Goldner said during the call. “That includes new production in India and Vietnam.”
Unlike Hasbro, the majority of Mattel’s Hot Wheels and Barbie toys are not manufactured in China; approximately 50% of Mattel’s manufacturing is in owned plants (about 50% outsourced). The brands manufactured in these plants are some of Mattel’s best-selling toys. In the most recent quarter, sales of Barbie rose 9% and sales of Hot Wheels jumped 5%.
“Keep in mind that if tariffs were to take effect, it doesn’t mean that Mattel will bear the full impact of these tariffs,” Mattel CEO Ynon Kreiz said during the company’s earnings call last week. “There are several levers that we can pull to offset the potential impact such as price increases, find different alternative suppliers, work with our product development and procurement teams to optimise our product mix and sourcing options, and transition to a different manufacturing structure that gives us the flexibility and mobility to leverage our resources.”
Steve Pasierb, president and CEO of The Toy Association points out that the toy industry supports hundreds of thousands of US jobs, and reinvests billions of dollars in the US economy, with up to 82¢ of every toy retail dollar remaining in the US. Similarly, about 65¢ of every toy production dollar remains in the US.
“Toys are a big deal,” he explains. “The toy industry’s annual total economic impact in the US is $110.9b. The average price of a toy is around $10, but the estimated 3b units sold across the nation each year generates approximately $27b in direct toy sales.”
The Toy Association figures show that the US toy industry supports an estimated 691,263 jobs (FTE) generating more than $35.1b in wages for US workers, and generates $14.98b in tax revenue each year.
However, Steve concludes: “Facts, logic, detailed financial explanations, testimony, and first-hand stories from toy companies and retail employers here in the United States apparently still cannot prevail over the power of the tweet.” The foreign ministry in Beijing responded to the announcement by threatening to introduce further countermeasures of its own.