Toy industry prepares for price increases as tariffs hit imports

President Donald Trump's tariffs on imported goods from China and Mexico already are disrupting the toy industry even as the White House plans for reciprocal tariffs to be added starting in April.

Imports from China account for 77 percent of toys sold in the U.S. Customers can anticipate an increase in prices at retailers due to tariffs. Toy industry profit margins are within the single-digit to lower double-digit range, leaving manufacturers no choice but to raise prices.

"A 20 percent tariff, as we look at the industry and talking with manufacturers, is potentially going to be almost a one-for-one inflationary price increase in the price of toys to the percent of tariff," said Greg Ahearn, president and CEO of the Toy Association.

According to the Toy Association, an organization that focuses on the safety and growth of the U.S. toy industry, prices for toys are expected to rise starting around the time that back-to-school shopping is in full swing in August and September.

Companies are already wrapping up manufacturing for popular toys for Christmas, but those toys still need to be packaged and shipped from China to the U.S. Expect those to hit store shelves by early August, which would put them on the same schedule as the expected retail price increase.

The Toy Association is expecting the price increases will mean demand for toys will go down.

"Everybody's got a budget, and budgets are constrained," said Ahearn. "You potentially will have less toys that are being sold because of the higher price points."

Some toys are expected to have a lower value proposition with the price increases. That means toy companies will lose prime spots at retail locations. This action will have a big effect on small businesses that have smaller margins. Small businesses make up about 96 percent of the toy manufacturing industry in the U.S.

The Toy Association is currently lobbying against tariffs on toys, and there have been discussions with representatives of the Trump Administration and members of the Senate. The association is pointing out that tariffs will hurt small businesses and lead to purchases of unsafe products. "We believe that toys are an essential part of childhood and of a child's healthy, happy development, whether that be physically or mentally or emotionally," Ahearn said.

Toys must go through multiple layers of testing to produce a high-quality, ethically manufactured and safe toy for children. With an increase in prices will come the appeal for cheaper alternatives from companies such as China-based online retailers Shein and Temu, which are selling knockoff and counterfeit unregulated toys.

"Counterfeit and knockoff toys might get into the hands of children," Ahearn said. "These toys have things like lead paint, small parts or they break in unsafe ways because they haven't gone through strategic testing that needs to happen here in the U.S."

In comparison, the Toy Association tracks multiple companies with manufacturing in the U.S. whose major concern is the supply chain relationship with China and Mexico.

"It's been built up over decades," Ahearn said. "It's there because there are beneficial labor rates, their specialty of skilled labor of face painting, hair weaving, decorating or packing out have all been built up over time."

According to Ahearn, this type of manufacturing would take five to 10 years to be built up in the U.S. and would come with menial-tasks jobs that are not desired by U.S. workers.

Some local manufacturers that produce toys in the U.S. are starting to hear from companies that produced toys overseas reaching out to discuss potential manufacturing possibilities.

"We've already seen other manufacturers announcing price increases because of the tariffs," said Brian McDonald, vice president of sales and marketing at Simplay3 Co. "Actually, this allows us on certain categories to be more competitive than what we were previously."

Simplay3 is a rotational molder of large toys like activity tables, sandboxes, and modular climber and slide sets as well as mailboxes and gardening products. The company's products are all made in the U.S. in Streetsboro, Ohio. The company is predicting the reliability of its pricing will increase demand as other companies experience uncertainty with the tariffs.

Simplay3 has already gained a new customer in the face of new tariffs: Kalani. That buyer previously worked with products made and imported from China.

"I was at Toy Fair with different companies when that first 10 percent tariff happened," McDonald said. "Companies were working out to how to split the difference in everybody's share in the increase. But then once you got another 10 percent on top of that, then suddenly it becomes more real."

Within the past year and a half, Simplay3 has seen a slight decrease in demand as inflation has affected the prices of toys. McDonald suspects an even bigger drop in demand for the toy sector due to tariffs, but the company isn't as worried about demand for its toys.

With its most recent launch of a new sandbox, the company is actually gaining orders and will be able to avoid the need for price increases, he said.