Earlier this week, President Donald Trump delayed tariffs on several goods from China to December 15 from September 1. According to Trump, the delay will allow U.S. companies to avoid paying any additional taxes on certain items that may get passed on to consumers during the crucial holiday season.
Toys were included on the list of items that would not see a tariff increase. But toymakers don’t exactly feel relieved.
“We don't know what to do because we are what I call in the yo-yo diplomacy. One day, he’ll tweet, there's going to be a tariff increase of 30%,” MGA Entertainment Founder and CEO Isaac Larian told Yahoo Finance’s On the Move, referring to President Donald Trump. “Another day, it's 10%. Then it's off. Then it's back on. So it is very, very difficult for a toy company to really plan based on these tweets. There is no clear direction of what's going on.”
Approximately 80% of toys worldwide are made in China and the U.S. is its largest customer, according to ITI Manufacturing. A typical toy retails for $10 in the U.S. and for some of them profit margins are pennies on the dollar, according to the Toy Association.
“You sell, let's say, 100,000 of an item at $10 retail,” said Larian, who makes 75% of his company’s merchandise in China. “ But once you go to $12, you only sell 25,000— a lot of customers won’t buy it. So that will have a ripple effect.”
“There are certain skills that are only available right now in China,” he said. “We cannot just pack that up and move it to the U.S. or Vietnam.
Toymaker Hasbro (HAS) announced that it will slowly move its production out to India and Vietnam from China. It currently makes about two-thirds of its products in China and wants to cut that in half by 2020.
But according to Larian, “the toy companies that moved to Vietnam are having a difficult time getting produce into the USA on time for Christmas because factories are not disciplined to deliver on time. You cannot extend December 25— Christmas will always be on December 25.”
Toymakers were quick to celebrate the tariff delay. The Toy Association said the delay “saved the holiday season” and Hasbro put out a statement thanking the president for listening.
But for Larian this delay will not solve any long-term problems for the industry.
“Delaying the tariffs is like a Band-Aid right now to try to basically save this Christmas,” Larian said, adding that hopefully Trump will not change his mind about from now to December 25. “But then after that, it's up in the air. We don't know what's going to happen.”
Valentina Caval is a producer at Yahoo Finance.
Valentina Caval is a Producer at Yahoo Finance.