The toy industry is bracing for increased prices as trade tensions escalate. Recently, the Trump administration implemented a 10% baseline tariff on a wide range of items from various countries, which predominantly affects imports from China and Vietnam—two key supply sources for U.S. toy manufacturers.

For years, U.S. toy companies have relied on Chinese factories to produce popular action figures, dolls, and board games. In response to rising trade disputes with China, many companies have turned to Vietnam as an alternative manufacturing location. However, the latest tariffs have now imposed a significant financial burden on the industry.

China has faced an additional 34% tariff imposed by the Trump administration, pushing the total tariff rate on Chinese goods to a staggering 54%. Similarly, Vietnam is now subject to a 46% tariff. Industry experts warn that these tariffs exceed expectations and could potentially trigger considerable price increases on toys.

Greg Ahearn, president and CEO of The Toy Association, expressed concern about the broader implications for both consumers and the toy industry. He stated that many in the sector are taking urgent measures to adapt to these changes.

In a retaliatory move, China has announced it will also impose a 34% duty on all U.S. products. Industry leaders are hopeful that negotiations with Vietnam may be more manageable, as they believe that the Vietnamese government is keen on resolving these trade disputes quickly. According to Curtis McGill, co-founder of Hey Buddy Hey Pal, Vietnam is in a position where it cannot afford to lose significant business.

Statistics from The Toy Association reveal that approximately 77% of toys imported into the U.S. come from China, with Vietnam ranking just behind Mexico as another significant supplier. Previously, Trump imposed a 25% tariff on non-compliant goods from Mexico as part of the United States-Mexico-Canada Agreement.

Leading toy manufacturers like Hasbro and Mattel had predicted a 20% impact due to existing tariffs on Chinese imports and have already initiated plans to shift production to countries such as Vietnam, Indonesia, and India. These countries, however, are now facing their own increased tariffs of 46%, 32%, and 26%, respectively.

Analyst Eric Handler from Roth highlights that, due to these financial pressures, relocating manufacturing may no longer be a feasible option for many companies. He noted that consumers would start to notice price hikes as businesses attempt to offset these tariffs.

As the toy industry prepares for first-quarter earnings reports, Handler anticipates that both Hasbro and Mattel may lower their financial forecasts. On the stock market, toy companies have already felt a sharp decline, with Mattel shares dropping over 16.5% and Hasbro losing more than 12%. Furthermore, Funko, which also relies on manufacturing in China and Vietnam, witnessed an 18% drop in stock value.

While some experts believe companies might seek ways to cut costs, such as renegotiating agreements with manufacturers or changing packaging strategies, the reality remains that the increase in tariffs will ultimately be passed on to consumers.

Greg Ahearn estimates that price increases could range from 35% to potentially as much as a 50% increase, particularly considering the 54% tariff on certain goods. The margins in the toy industry are typically slim, often in the high single digits, leaving manufacturers with limited flexibility to absorb the additional costs.

Ahearn emphasized that the burden of these price hikes will disproportionately affect consumers with tighter budgets, making essential toys even less affordable. The Toy Association projects that these rising prices will coincide with the back-to-school shopping season, raising serious concerns about the economic impact on families.

In summary, the toy industry is facing significant challenges as it navigates the ramifications of increased tariffs on crucial manufacturing partners. With price hikes inevitable, both manufacturers and consumers must brace for a shifting landscape as trade tensions remain at the forefront.