A Border Tax; Not A Good Thing For The Toy Industry

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"A leading Republican lawmaker warned on Tuesday that Congress will not be able to lower the U.S. corporate tax rate to the 15 to 20 percent range sought by President Donald Trump unless a controversial "border adjustment" proposal remains part of tax reform. The proposal…would impose a 20 percent tax on imports."

"U.S. Republican ties lower business tax rate to border adjustment", Feb. 24, 2017, Reuters, David Morgan

 

In a sense, it would be children who would pay the price in toys that cost more and do less.

Richard Gottlieb

There is an idea being bandied around about a tax on products that are made in other countries and imported into the United States. Whatever your position on "Made in America", this is not a good thing for the toy industry.

What percentage of toys sold in the United States are made in the United States? 3.5% according to a 2010 report (the latest figures I could find from the Commerce Department). Is this a new situation? Well, no, toys have always been made in other countries. In fact, prior to World War I, Germany was by far the world's leading producer of toys. 

After World War II that all changed as American companies went to Japan, then Taiwan, next Hong Kong and finally China to make their toys due to the low cost of labour. In other words, the American toy industry has for decades been predicated on a very low retail price for a lot of play value (and in some cases a lot of plastic). 

Bottom line, a border tax would be a shock to the toy industry and to consumers and their children. Should a tax be placed upon goods made by American companies in foreign countries, it would result in those costs be passed on to consumers. In a sense, it would be children who would pay the price in toys that cost more and do less.

We as an industry need to keep an eye on potential legislation and make sure that the toy industry is either exempted or is buffered so that any adjustments that might take place do so over time. This would allow the industry to catch its breath and make the necessary adjustments.

What do you think about this? Do you think we looking at a problem?

4 thoughts

  1. The bad news is that this would be a terrible move for Children and the Toy Industry. The worse news is that this would be a catastrophic decision for the US economy, which is around 70% consumer driven, as overnight we would see prices increases equaling the tax.
    It would also negatively impact exports as there would surely be a world wide reaction of similar import taxing.
    So basically we would be handing out a maximum of 20% in additional kept income so the consumer can buy the same amount of product at the newly inflated 20% prices. That is not even smoke and mirrors smart.
    The Republican held Congress, who has a platform commitment to free trade, has to see the stupidity of this move and the negative impact it will have on the economy instantly.
    just in case the Congress does not recognize this, the TIA must immediately either lead or follow all of the major retailers and major retail suppliers in lobbying the Congress as well as informing the consumer of the coming reality.

  2. The margins requested right now by US retailers are already hard, especially for smaller manufacturers. It would certainly be a game changer for manufacturers of all sizes to have to cope with a border tax.

  3. This is a huge problem for toymakers. The biggest problem is that Trump cannot see this as impacting millions of children. You don’t even have to be a toy insider to know that virtually all toys are made in other countries, China owning 91% of American mainstream manufacturing of toys. And if this border tax goes through, manufacturing in USA, while desirable, will inflate the average price of a toy 68%. Parents will buy less, or go to very small mom & pop shops to buy handmade toys, or make them themselves; now I agree this sounds great on paper (in Trump’s fantasy world) – but in reality it will cripple a good chunk of economic activity, set the toy industry back decades, and cascade to other areas of the economy. Is that what we want? To feel good inside BUT to deprive our country of needed spending and risk living in more poverty than we already are? It seems Trump just doesn’t understand how the world works – which will be devastating to the US.

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