Escaping tariff hikes before Christmas, U.S. toy industry craves certainty

Thanks to a long-awaited announcement earlier this month that the United States and China agreed on a "phase-one" economic and trade deal, the U.S. toy industry, among many others, narrowly escaped potentially disastrous tariff hikes before Christmas.

It was a relief to Jay Foreman, president and chief executive officer of Basic Fun, a Florida-based toy business. He compared the threat to a "sword" over his head, saying it has cast a shadow on business operations, planning and development.

"Of course I'll feel great that I don't have impending disaster raining down on me," Foreman told Xinhua in a recent interview. "I would have really felt a lot better if I never had it in the first place."

DEAL WELCOMED

For months, Foreman and his colleagues have been concerned about the arrival of a "nightmare" that toys his company imports from China would be slapped with additional 15-percent tariffs, previously scheduled to take effect on Dec. 15.

"It's a direct tax on our merchandise and profits," Foreman said of the tariffs. "If somebody is trying to take and reduce our profits, it becomes a nightmare."

Facing the threat, Basic Fun, most of whose products are manufactured in China, has closely followed the trade negotiations between the world's top two economies and constantly held meetings to discuss the situation.

"Are the tariffs on? We have a meeting. What do we do? Are the tariffs off? We have a meeting. What do we do? So it really becomes difficult to plan," Foreman said.

The anxiety kept growing until two days before the deadline when China and the United States announced the "phase-one" agreement, followed by the White House's decision not to proceed the planned tariffs targeting Chinese imports, including phones, computers, holiday ornaments, clothing and toys.

Steve Pasierb, president and chief executive of the New York City-based U.S. Toy Association, said he welcomes the deal.

"With uncertainty removed, toy companies can move forward and focus on planning, product development and providing joy for kids through the toys and games they make," Pasierb said in a statement.

Foreman said he understands that the deal won't fix all the trade issues between the two nations, but "it's a goodwill gesture to show the market and to the world that America and China can work together."

SAFETY FIRST

Since Washington initiated trade disputes with China over a year ago, U.S. businesses relying on China's manufacturing prowess were frequently asked why they simply don't relocate their production to other countries or regions.

Most said they couldn't or wouldn't, including Basic Fun, which lists safety as its "first concern."

Over the past few decades, Basic Fun and many other U.S. toy companies have worked closely with their Chinese partners. Together they have developed the best supply chain and the highest safety standards in the toy industry.

"It's a really efficient, fantastic and most importantly, safe production and supply chain ... It's really important for toys to be made safely," said Foreman. "You almost never hear an issue of a toy being unsafe anymore that's made in China."

The entrepreneur also weighed in on China's strength in manufacturing. "We really rely on the Chinese productivity a lot because the factories and the workforce are extremely efficient."

"They really know how to set up production lines," he added. "They're motivated. They're hardworking. They're diligent. And they've been a really important part of the growth of the toy industry in the United States."

As for Basic Fun, moving production out of China would take 12 to 24 months and cost millions of dollars, not to mention posing certain risks.

"I can say that I have no interest in moving out of China ... There's no good option for our industry," Foreman noted.

TOUGH TIME

The past two years for the U.S. toy industry have been tough. Toys "R" Us, once the country's leading toy retailer and Basic Fun's biggest customer, filed for bankruptcy in 2017, resulting in the closure of hundreds of stores and the elimination of tens of thousands of jobs.

Partly because of Toys "R" Us' downfall, the American toy industry is expected to be hit with a decline of 3 to 5 percent in sales in 2019, Foreman said.

The waning of brick-and-mortar retail in the United States comes amid a rise of online sales and shopping, which has brought both challenges and opportunities for Basic Fun and other toy brands.

"All of us in the toy industry are slowly, with many challenges, learning the best way to sell and market our products online," Foreman said.

In addition to competing against each other, U.S. toy makers also face fierce competition from console games, mobile gaming and social media. Clearly, no one wants more tariffs or the threat of them.

"We work in a business that has a long development cycle. We're selling and we're showing our customers products now for next Christmas," he said. "When there's uncertainty about the price you're going to charge your customers, you really can't plan effectively."

But the U.S. toy industry might consider itself lucky, given how plenty of imports from China still remain subject to extra tariffs by Washington, which are taking a toll on the national economy, company profits and the public.

Pasierb said he wants to see an end to the trade disputes, urging the administration to "seize this opportune point in time to also eliminate tariffs that remain in effect."

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