BY JAY FOREMAN, CEO Basic Fun
As we go into Toy Fair ’25 the administration in Washington dropped another bomb this week on industries that import goods into the United States. It added another 10% tariff on the imports from China making the rate for toys 20%. The President definitively stated that 25% tariffs are going on Mexico and Canada next week and that tariffs will go on a wide range of other countries on April 2nd, likely including India, Brazil and Vietnam.
We’ve all been scrambling to figure out how best to handle, mitigate, and/or eat these tariffs. We had just figured out that if everyone pitched in…our China vendors, our retail partners and our company we could handle 10%. This push up to 20% is a bridge too far. As bad as this is, it makes the next step for us all very easy:
We as an industry… manufactures, importers and retailers need to “pass it on”! We need to do this as quickly as possible as a “cost of goods”.
It’s impossible to imagine any of us have a business model that can absorb a loss of 20% off invoice or against margins. In addition, none of us have factories that have anywhere near the type of margin that would give back in discounts to support this, even to make a dent, without all of us risking corners cut on safety and value. So, what to do? Do we risk our capital and business models, hoping this goes away soon, or somehow we’ll magically be able to sustain our businesses with no profits? We can’t risk that.
The President has a vision, I suppose. I’m not sure anyone really knows what the full view is, but he’s got one. Maybe he’s right? Maybe we are being ripped off and this is just a rebalance. Maybe it’s a way to raise revenue for tax cuts or lowering the deficit? Fine, take it from one pocket (business and consumers) and put it in another lower taxes for some? Okay, so be it, but our businesses shouldn’t have to bear the cost on our backs. So, I urge us all to pass it on!
As the hyper inflation that these tariffs cause rages, the consumer will raise hell. The only thing that can reverse these tariffs are the voices of consumers, opinion polls, and the ballot box. At that point the President will make big, high-profile deals–first with China and then one-by-one with other countries, and if we are lucky this nightmare will be over. Or, we just have our own de facto VAT.
As it relates to China, clearly the first 10% was unfortunately shrugged off by Mr. Xi, who barely raised an eyebrow when the first wave was implemented. Trump sensed that, and by adding the additional 10%, he is hoping to get a reaction. Hopefully he gets one that brings them both to the negotiating table to make a deal. Xi realizes that he doesn’t pay the tariff…we do! Unfortunately, Mr. Trump doesn’t understand or care that not only do we pay but so does the American consumer.
In the meantime, it’s imperative that we vendors and retailers pass these through as a cost of goods sooner than later. In addition, for those of us who are licensees, our licensors need to help and recognize that tariffs should be an allowance to be deducted from the net sale value we pay royalties on.
I urge you all to clearly understand the cost to your business, if you try absorb these costs and the risk we take if we try to squeeze our vendors too hard. The time is now to communicate honestly with our retailers and align on this stance. The faster we can move these tariffs across as a cost of goods, the better chance we have to see them be rolled back sooner than later.
Good luck to us all at the show and getting over another giant bump in the road this year.
Jay
