How Would Trade Tariffs Affect Star Wars Toys?

The USA and China are currently engaged in a trade war, it’s not the taxation of trade routes to outlying star systems that is in question, the US administration is of the opinion that China is taking unfair advantage of free trade, so more and more imported goods from China are subject to trade tariffs. What would happen should the US administration impose a 25% tariff on virtually anything produced in China? Including toys? How would and could Hasbro react? What effects would consumers feel and what scenarios are there? Click through for details!

President Trump meeting Xi Jinping in China in 2017

Before we think about a possible scenario we need some basic facts.

More than 80% of all toys sold in the USA are imported from China. In 2017 toy imports from China amounted to $17.7 billion. Toy industry sales in the USA were $20.7 billion in 2017. You can easily see how important China is for the toy industry.

Not surprisingly, most of Hasbro’s third party factories are in China. The most recent list of third party factories provided by Hasbro is from 2016 and lists 79 third-party factories. And in 2016 53 of these third-party factories were in China, that’s about 67%.

Some Chinese factories have begun to outsource production to Vietnam and Hasbro has some third-party factories there too, because production costs in Vietnam are lower than in China. But the smallprint for the 5 POA figures, TVC and the Black Series says that the figures are all made in China.
So what would happen if a 10% or later even 25% tariff was imposed on toys made in China?

The licensing agreement between Hasbro and Lucasfilm/Disney says that in such a case both parties would meet and discuss appropriate actions. But what action could be taken?

These are the options I see:

• at first prices are increased a little bit, but much less than 25%, in a best case scenario prices remain stable at first, at least for a while
• Disney may lower their royalty rates a bit (they are very high to begin with, it’s the highest royalty rate in the toy industry) to help Hasbro with their profit margin and with keeping MSRP relatively stable
• Hasbro may accept lower profit margins for a short while and keep the wholesale prices relatively stable for the time being or only increase them moderately
• Retailers may accept lower profit margins for a short while, even if Hasbro raises wholesale prices moderately

This is the best case scenario. But if the trade dispute lasted for months and months then decreased profit margins are neither really acceptable nor viable and prices would most certainly increase a lot, even if Disney lowered their royalty rates. There’s no way Hasbro and Lucasfilm could ultimately prevent higher prices with a 25% trade tariff. In this case expect much more expensive action figures. TVC could be as much as $16. Black Series maybe $25 or even more.

Now, there’s always the possibility that certain toys will be exempt from trade tariffs since these tariffs would hurt American toy companies the most, namely, Hasbro and Mattel. The most recent tariffs exempt certain Apple products made in China, Apple actually lobbied the administration to exempt several of their products from the new tariffs. So maybe a similar exception would be made for Star Wars and Hasbro. Disney is one of the most influential and important media and content creation companies in the USA and you certainly don’t want to annoy them, as much you don’t want to annoy Apple. And Hasbro is one of the leading toy companies in the world. Disney (and/or Hasbro) would most certainly talk to the administration and ask to be spared from trade tariffs as well.

Hasbro is not idly waiting on the sidelines either, they are already diversifying their third-party factories with new factories in Vietnam and India. But this is only a long term solution, for the short term it would be near impossible to completely outsource Star Wars toy production to Vietnam or some other country. Also, China has many benefits these other countries don’t have yet: skilled workers and infrastructure.

Toy production on a large scale in the USA is next to impossible. Skilled workers and factories are missing. And even if the USA had the required workforce and factories production costs in the USA would be prohibitively high. There is a reason why so many companies outsource production to China in the first place: the much lower production costs that enable companies to give consumer low prices. There would be much weeping and gnashing of teeth should Star Wars action figures get made in the USA, because the figures would be much more expensive then. No worker in the USA would even lift a little finger for the very low wages a factory worker in China gets. The average hourly rate for a Chinese factory worker in 2017 was $3.60 (which is already on the expensive side in Asia, India or Vietnam have substantially lower wages), in the USA a factory worker gets an average hourly rate of $10.97, which is more than three times as much.

But factory worker wages are not everything, the factory needs energy, you need management staff who also would get much higher salaries in the USA, so unless Americans (and all the industrialized nations) would be willing to pay much higher prices, Asia will still be the workbench for toys and many other products for the foreseeable future. No tariffs will change that.

The next few months will show us whether or not Star Wars collectors in the USA will have to face trade tariffs. We can only hope that both the USA and China come to an agreement soon to avoid a prolonged trade war that will see no winners, only losers.

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