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BACKGROUND
The American people have re-elected President Trump, he returns as only the second President ever to be re-elected for a non-consecutive term. This article is going to look at the implications of Trump’s return to office. As a non-American, I will not risk the ire of US citizens by passing comment on the rights and wrongs of US domestic Politics, but Trump’s return will affect the whole world, and will have a potentially major impact on the Toy & Game business, and we need to think about the implications of that carefully and take appropriate responsive actions.
WHAT HAPPENED UNDER THE LAST TRUMP ADMINISTRATION WHICH AFFECTED THE TOY & GAME BUSINESS?
The first Trump administration had one major impact on the Toy & Game business: it accelerated the ebbing away of Toy & Game production from China to other countries. First time round, Trump’s fiery rhetoric towards China, and the action to impose tariffs on various product categories that didn’t quite reach Toys but got quite close highlighted the risk of our industry being so heavily dependent on China’s massively capable and experienced Toy factories.
Our Consultancy business: www.ToyTeamAsia.com saw a massive upsurge in Toy & Game companies seeking assistance with strategic sourcing diversification, as the perceived risk of being so heavily reliant on China became much more top of mind.
To keep that in context though, what we saw was an increase in the rate of production ebbing away from China, but even today, China is still the dominant force in Toy manufacturing with around 80% of the global market. So the rate of change accelerated, btu be under no mistake, China is fundamentally critical to the ability of the business of Toys & Games to meet demand, if China’s Toy factories all closed today, forget Christmas for the next sales cycle!
WHAT’S GOING TO HAPPEN THIS TIME ROUND WITH PRESIDENT TRUMP’S 2ND TERM?
It’s not always straightforward to listen to Trump and understand what actions he and his administration will definitively take…, because rhetoric is such a fundamental part of Politics today, but it looks very likely that Trump will renew his approach to China in terms of a more aggressive and protectionist strategy. Earlier this year, Trump stated that if he regained office, he was considering adding 60% tariffs on all goods from China. Of course there is a big difference between threatening to impose 60% tariffs and actually doing it, but tariffs on that scale could be catastrophic for our industry, with c. 80% of Toys still coming from China today, a 60% tariff rate would lead to considerable price inflation and most likely a resultant slump in demand. The counter argument would of course be twofold: a). Increasing tariffs on China would give domestic American Toy producers better chance of competing b). Other countries could take up some production and presuming they do not suffer from equally punitive tariffs could really accelerate Toy production due to suddenly finding a massive price advantage versus Chinese factories.
To be somewhat contentious you could say that both of those counter arguments might work theoretically but would come nowhere near being practical solutions to the huge production capacity the Toy & Game business requires every year. In terms of domestic Toy production ramping up in the U.S., there could definitely be some growth there, but it is very unlikely to suddenly ramp up from where it is today to equal the c. $35 billion of production coming out of China every year currently, that is just not possible quickly. It is possible, if not likely over a couple of decades, but not in a hurry.
And as far as other production hubs are concerned, the issue is not whether they can all together eventually equal China’s Toy & Game production capacity and capability, the issue is that they are going to struggle to be able to replace $35 billion of capacity in the next decade, let alone in the next year or two!
My prediction here (which is just an opinion, this is not fact), is that 60% tariffs will be too disruptive on the domestic economy of the U.S. to fully implement at this stage, but that Trump will gain advantage by making the threat. Conversely though, what I don’t see as likely is no tariffs at all. We really should at this stage be budgeting for some degree of tariffs on Toys coming out of China. Which is not going to be easy to swallow. According to some reports, one factor which prevented Trump’s administration from putting tariffs on Toys last time round was that he was advised that stopping Americans from being able to put presents under the tree was not going to be a vote winner. Hopefully that sentiment prevails again this time round, but at the very least it would be prudent to start budgeting for some tariffs to mitigate the financial impact.
One further factor to consider is Trump’s appointment of Senator Marco Rubio to the position of Secretary of State. Rubio is described in the U.S. media as being ‘hawkish’ on China. It seems unlikely that Rubio will take a soft approach towards U.S. relations with China. So whereas last time around the Trump administration had some voices and opinions which tempered certain more hawkish strategies towards China on the basis of the potential impact on the US in general, and the US economy specifically, Rubio seems more likely to support strong competitive practises vis a vis China. The fact that China announced sanctions against Rubio (and other lawmakers) in response to U.S. sanctions on China due to matters relating to Hong Kong is another indicator that this incoming administration could have a relationship with China which is full of friction and tension.
I’m hoping for our industry that the 60% tariffs aren’t implemented on Toys & Games, but hope is a very poor strategy. It’s going to be a tricky few years ahead I believe, and so it’s important to plan for this and manage it as best as we can.
HOW RISK ANALYSIS HAS CHANGED SOURCING STRATEGIES
One of the biggest observations you can see with regards to Toy & Game production strategies is that risk analysis and risk aversion becomes a strong driving force across the last decade. If you own/run an independent Toy company, you can take whatever approach you like to the way geopolitics and the ebb and flow of economies is affecting our industry.
However, if you are a stock market listed giant of a company like Walmart for example (market cap at time of writing $687 billion, making Walmart the 13th most valuable company on the planet at the time of writing), then you have to take a strategic approach. And how that works in big stock market listed companies is that a perceived risk leads to change and counteraction, regardless of whether that risk comes to fruition or not.
So due to all the geopolitical tension between the U.S. and China, Walmart has been heavily pressuring suppliers to move a big chunk of production out of China so they can try to mitigate the risk of major supply disruption due to a). Potential tensions, blockades or even potential military action in the Taiwan strait b). Tariffs or other punitive trade measures c). Disruption to supply capacity and capability caused by demographic trends leading to worker shortages.
Right now then in major corporations, the same risk calculations are being rerun with the added risk of 60% tariffs, or if not 60% at least some further disincentives to source Toys from China. The reality is that if you are spending $billions on inventory like Walmart or like the major Toy & Game companies, you can’t move that scale of production quickly, at least not without massive turmoil, frictions and snafus! So if your strategy to Sourcing is to sit and wait and see what happens, you can definitely expect these big risk averse companies to have taken up much of any alternative production capacity in alternative production hubs like Mexico, Vietnam, India and Indonesia. If you want to play the ostrich in the sand strategy leading up to Trump’s return to office, then good luck finding capacity when you really need it.
IN CONCLUSION
These are turbulent times, and change is ongoing. From my personal and professional view, I love China, and like many of you reading this, I have a lot of friends in China and Hong Kong, and our company is still actively finding new customers for some really good Toy & Game factories in China, and we are not stopping that work. I am also a lover of Chinese history and culture, starting from my childhood obsession with Eastern martial arts and martial arts movies, through to today when I read ancient Chinese military strategy books for fun! So the analysis herein comes not from any anti-China sentiment – be very clear about this: China’s Toy & Game factories make it so easy for us in comparison with other places we can manufacture Toys, but it’s just hard to see how the 2nd Trump administration won’t accelerate the rate of production moving outside China.
N.B. there are some other implications of Trump’s return for the U.S. domestic Toy market, but as an outsider, I think there are better placed people to comment on those implications which include most likely less regulation and less focus on environmental issues and sustainability.
FACTORIES WE REPRESENT
We represent the following factories both in and outside of China. All of these factories have the necessary certifications, have capacity, have a history of successfully supplying other Toy & Game companies and who are very much open for business:
Plastic Toy Factory in China (managed from Hong Kong) – strong track record of decades of supplying Toy companies around the world.
Board Games supplier in China – I have worked with this vendor for 20 years, they have supplied dozens of major & minor customers of mine.
Games factory in Vietnam – supplying cardboard, wood & plastic Games.
Games factory in India – supplying major Toy & Game companies with cardboard & plastic games.
Plastic & Electronic Toy Factory in India – major supplier, having supplied 4 out of 5 of the world’s biggest Toy Cos.
Plush factory in India - leading Plush factory with strong R&D skills.
If you would like more information on any of these factories or if you need help with a strategic approach to Sourcing or want to find specific factory types, please feel free to get in touch.
PLAYING AT BUSINESS PODCAST
Did you know that my company publishes a podcast all about how to succeed in the Toy & Game business? At the time of writing we have 110 episodes live. The podcast has been running since 2018, and there are plenty of updates published throughout the year. You can find the podcast on Apple here: https://podcasts.apple.com/gb/podcast/playing-at-business-toy-game-business-podcast-with/id1389778170 or you can listen via Spotify here: https://open.spotify.com/show/4INDb6E2xALOm1gAoC3oYj?si=36a12c5be3a34078 or to go to where we Host the show, click here: https://playingatbusiness.libsyn.com/
EPISODE 110: SO YOU INVENTED A BOARD GAME, NOW WHAT? HOW TO COMMERCIALLY LAUNCH YOUR GAME.
In this episode of the PLAYING AT BUSINESS podcast we take a look at what the steps are to bring a new board Game to market.
A recent review of all our Toy & Game business content output from the last decade and a half revealed that we had been severely under using YouTube. Partly that’s due to my having the ‘perfect face for radio’, but it’s something we’re currently working to remedy.
So if you watch a lot of YouTube to find out more about what is going on in the Toy & Game business, maybe you want to subscribe to our channel too, you can find it here: https://www.youtube.com/@kidsbrandinsight1679
COMING SOON: THE BOARD GAME BIZ PODCAST
Well this is big news from us. We will very soon be launching a new podcast exclusively focused on the business of Board Games. Five episodes have been pre-recorded and will go live in the next week or two. If the business of Board Games is your thang, stand by :)
We run a Toy & Game business growth accelerator program. We have run this program with many up-and-coming companies, and we run through our process to review your progress to date, identify your strengths and weaknesses versus your competition and to ramp up your Sales efforts. If you want to find out more on how this service works, just click here: https://www.kidsbrandinsight.com/services
Sign up to our Free Toy Industry Journal e-newsletter for the latest articles, podcasts, trends and insights into what’s going on in the Global Toy & Games business, just click here to sign up: https://forms.aweber.com/form/54/1325077854.htm
PS Just one final thing...we have been using AWeber as our automated email software since 2011. We have many tens of thousands of email opens since then, might even be 100k+. We still use AWeber because it is intuitive and easy to use, and offers easily understandable metrics at a minimal price. If you want to check out AWeber for your own email marketing, just check it out here: https://www.aweber.com/easy-email.htm?id=377817