Tariffs couldn’t come at a worse time for the toy industry

Hasbro (HAS), the company behind iconic toys and games like Monopoly and Play-Doh, says new tariffs could increase the cost of toys, devastate the industry and pose safety risks.

The toy maker is among hundreds of companies who have testified in Washington over the past week, asking the Trump administration to spare them from the next round of tariffs.

Hasbro COO John Frascotti is due to testify on Monday.

In comments submitted prior to the testimony, the company told U.S. Trade Representative Robert Lighthizer that 85 percent of all toys sold in the U.S. are imported from China.

A woman and a child play an exhibit of Play-Doh toys made by US toy maker Hasbro at a toy store in Beijing on Wednesday, May 15, 2019 (AP Photo / Mark Schiefelbein)

At present, toys and games are on the $ 300 billion list of Chinese goods that could be subject to tariffs of up to 25%.

Hasbro argues the tariffs would cause “significant and disproportionate” economic harm to the toy industry and American families. The company estimates that a tariff increase could reduce the toy industry‘s contribution to the U.S. economy by $ 10.8 billion.

“It couldn’t have come at a worse time for our industry. We, and the American toy industry as a whole, are facing serious headwinds from the recent bankruptcies of two major toy retailers, K-Mart and Toys ‘R’ Us, which have already put around 30,000 at risk. jobs in the United States, ”said Kathrin Belliveau, a senior vice president at Hasbro, in comments submitted to USTR ahead of the hearing.

Belliveau said the tariffs would make matters worse and lead to potential job losses across the industry, including at Hasbro.

Mattel (MAT) also submitted comments to the USTR, saying the tariffs would put American jobs at risk.

“Although unskilled production operations typically occur in China, the US toy, game, and childcare industry maintains major product design, marketing, and other key operations in the United States. which would be negatively affected by the tariffs on these products, ”said Corinne Murat, manager of Mattel. Director of Government Affairs, in the comments submitted.

Mattell said that in 2018, China accounted for $ 11.9 billion, or 84% of total U.S. toy imports.

Tariffs could pose risks to the safety of children

If tariffs raise the price of toys, Hasbro expects consumers to buy less – or instead buy cheaper and potentially dangerous toys.

“The tariffs could encourage US consumers to buy counterfeit toys that are cheaper, dangerous and do not meet strict US safety standards,” Belliveau said in the prepared comments.

These safety standards are part of why toy makers say they’re so dependent on Chinese manufacturers, and why that shouldn’t change anytime soon.

Unveiled at the New York Toy Fair on Friday, February 15, 2019, the Barbie Friends & Family Dolls line encourages children to experience history, culture and the world around them from their own homes.  (Diane Bondareff / AP Images for Mattel)

Unveiled at the New York Toy Fair on Friday, February 15, 2019, the travel-themed Barbie Friends & Family doll line encourages children to experience history, culture and the world around them from their own homes. (Diane Bondareff / AP Images for Mattel)

“A precipitous change in supply could jeopardize the carefully constructed safety guards that US toy companies have for this supply chain,” Murat said.

“Our suppliers in China are qualified and trained to meet strict US product safety standards that apply to toys and games made for use by children,” said Belliveau. “This workforce does not currently exist outside of China.”

Still, Hasbro says it has been trying to diversify its supply chain since 2012. At that time, it says 80% of products sold in the United States came from China. In 2018, that number fell to 67% and the company’s goal is to reach 60% by the end of 2020.

“Until then, Hasbro and other US toy companies will have no choice but to continue importing toys and games from China and pass the increased cost of tariffs on to US customers,” Belliveau said.

Right now, Hasbro says 20% of its toys and games sold in the United States are made in the United States.

In its prepared remarks, Hasbro said the tariffs would fall short of the administration’s goal of boosting U.S. manufacturing – but instead, the tariff burden would make it more difficult to move manufacturing outside of China. .

In its prepared comments, Mattel made a similar point, noting that consumers will be hurt no matter how toy makers react to the tariffs.

“It would be difficult to switch supplies in the near future, which means that the proposed tariffs would lead to higher consumer prices and reduced consumer choice. If the tariff increase ended up forcing US toy companies to shy away from their established Chinese suppliers, the companies would incur significant upfront testing and certification costs associated with their new suppliers, which would once again lead to lower prices. higher consumption, ”said Murat.

Jessica Smith is a reporter for Yahoo Finance based in Washington, DC Follow her on Twitter at @ JessicaASmith8.

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