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Toymakers brace for (trade) war, redesigning products and

scouring the world for new low-cost suppliers

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Trump has vowed to hit China with new tariffs

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Toymakers hope to avoid tariffs by warning politicians it

would

hurt children and families

By Timothy Aeppel

Dec 18 (Reuters) - With the incoming Trump

administration promising an entirely new round of tariffs on

U.S. 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 ( MAT ), 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."