Toymakers Scramble to Counter New Tariff Threats Under Trump Administration

Amid renewed tariff threats from the incoming Trump administration, U.S. toymakers, including Atlanta-based Kids2, are revisiting strategies to minimize the financial impact of potential levies on imports. Companies are leveraging innovative design changes and exploring alternative supply chains to navigate an uncertain trade environment.

Kids2, known for its infant chairs and rockers, previously avoided tariffs by redesigning its products. For example, the company transformed a children’s chair into a rocker by adding a moving part, bypassing a 25% tariff on children’s chairs from China. Such design adaptations have become critical tools in countering trade levies.

Shifting Supply Chains

The trade war has already led many companies to shift production from China to other countries. Vietnam and Mexico have emerged as significant sources of U.S. imports, with Mexico surpassing China as the leading supplier of goods to the U.S. in 2023.

Toy giant Mattel exemplifies this trend, with less than 40% of its products expected to be sourced from China by next year, compared to an industry average of over 80%. Mattel’s Chief Financial Officer, Anthony DiSilvestro, noted ongoing preparations for multiple tariff scenarios, emphasizing the unpredictable nature of trade policies.

Challenges in Relocating Production

While some companies are stockpiling goods to preempt tariffs, others, like Basic Fun, are cautious. CEO Jay Foreman warned of risks associated with excessive inventory, which can strain cash flow and storage. He also highlighted challenges in relocating toy production, such as maintaining product safety standards.

“Toys require rigorous quality and safety testing, which China has specialized in over decades,” Foreman said, emphasizing the expertise China has developed in the toy industry.

Cost-Cutting and Innovation

Kids2 remains deeply rooted in China, where it produces 90% of its products, including at its self-operated factory. Despite Trump’s tariff threats, the company continues to invest in its Chinese operations, focusing on cost-cutting measures like automation and supplier consolidation.

Chief Operating Officer John Sikes said these steps provide a cushion against tariffs, though he acknowledged that absorbing levies above 25% would be challenging. Kids2 has also begun diversifying its production, with 10% of its goods now made in Vietnam and plans to expand into India and other low-cost countries.

The company’s engineers and designers are working full-time to adapt products for tariff exemptions, though some items, like baby tubs, lack design flexibility.

Limited Tariff Impact on Toys

Toys were largely exempt from heavy tariffs during Trump’s first term, reflecting political reluctance to burden parents with higher costs. Even during the inflation surge from 2021 to 2023, toy prices fell by 4.4%, contrasting with a 20% rise in consumer goods prices overall.

Sikes believes the administration will avoid actions that could inflate toy prices, noting their potential impact on young parents and declining birth rates. “The optics and broader implications make significant tariff increases on toys unlikely,” he said.