.jpg?20241230')
With the incoming Trump administration promising an entirely new round of tariffs on US imports, Atlanta-based Kids2 and other toymakers are reviewing product lines, looking for ways to limit the cost of new levies.
In the last trade war, Kids2 redesigned an infant chair so it could be converted into a rocker by adding a moving part. Design tweaks like that are almost magical: They made a 25% tariff disappear, because children’s chairs from China carried the tax, while rockers didn’t and still don’t.
Kids2 and other companies that make everything from Barbie dolls to sneakers are scrambling for how to respond to Trump's latest tariff threats. Many have already moved chunks of production out of China long ago because of souring relations with that country.
The result of shifting supply chains is a surge of consumer goods imports to the U.S. from Vietnam and Mexico. Mexico became the leading source of goods imported to the U.S. in 2023, surpassing China for the first time in over two decades.
Moves by Mattel, for one, are emblematic of that shift. CFO Anthony DiSilvestro reminded investors earlier this month that by next year, the El Segundo, California-based toy giant will get less than 40% of its goods from China - compared to the industry average of over 80%.
"We have teams of people engaged today in analyzing and planning for different tariff scenarios," said DiSilvestro. "And obviously, our actions will depend upon what actually happens, which seems to change from day to day and week to week."
Some companies are moving extra stocks into the U.S. to get ahead of any new levies as well as a threat of more labor strife at East Coast ports, but that’s limited - and has its own set of risks.
Jay Foreman, CEO of Basic Fun, the Boca Raton, Florida-based maker of Tonka trucks and K’nex building sets, said, "You can get yourself in trouble bringing in the wrong product too early - it uses up cash flow and fills warehouses."
Foreman said moving toy production to other low-cost countries poses unique challenges, around product safety, for instance.
"Nobody’s worried that your spatula or tennis racket or tennis shoe is going to hurt you," he said. "But everyone worries that toys might hurt their child if they’re not made with good quality and tested properly." He noted that China has built up over decades a capability and track record in toys that others lack.
REPOSITION, REDESIGN
Kids2 is an example of the U.S. toy industry's deep China roots. It still produces about 90% in that country, including much at its own sprawling factory complex, which it expanded during the first Trump administration. Kids2 continues to invest in its Chinese operations even as Trump promises tariffs on goods not yet touched by his first round of levies.
The company said it is redoubling efforts to slash costs by automating its Chinese plant and consolidating suppliers - moves that Chief Operating Officer John Sikes says gives them a buffer against future tariffs.
Sikes estimates that, up to a point, the company could absorb new tariffs through cost cuts and other moves to minimize price hikes to consumers. "But anything above 25% is going to be a challenge," he admits.
Kids2 is also poised to move more work out of China if necessary. It built the ability to produce about 10% of its goods in Vietnam and is looking at options in India and other low-cost countries.
Companies also look for ways to design products to minimize tariffs. That became a major focus at Kids2 in the last three months, said Sikes, with engineers assigned to the task full-time along with designers and shipping experts. The company estimates it will take about another six months to go through all its products to look for ways, when possible, to do what they did with the rockers. To be sure, not all their designs can be tariff tweaked.
"There are some things - like baby tubs and potties - it is what it is," says Sikes. "There’s no gray area - so there’s no design workaround for some products."
Like many other toymakers, Kids2 also hopes to be insulated in any future trade war. Toys were largely spared from heavy tariffs during the first Trump administration - along with ubiquitous consumer goods like cell phones and laptops - because political leaders are loathe to increase the cost of something parents need to buy for children.
Indeed, through the 2021-2023 inflation surge - the biggest since the 1980s - toy prices were one of the few categories that dodged big price increases. They have fallen nearly 4.4% in the last four years, according to Consumer Price Index data, whereas U.S. consumer goods prices overall have rocketed by more than 20%.
Sikes said the company is pushing the message that it would be unwise to take steps that would push up toy prices - which would create new inflation pressures on cash-strapped young parents and possibly even discourage people from having children. Declining birth rates have become a concern in many parts of the world.
"That’s why I’m not too worried about what might happen," he said. "Because of the optics and impact it could have on what we already know is a challenge globally."
&uuid=(email))