New tariffs on Chinese imports would sink US small toy companies, disrupt holiday season

Xinhua
Toy-makers were anxious that the industry would take a big hit as 85 percent of the about US$3 billion worth of toys sold in the United States each year come from China.
Xinhua

Bob Grubba, head of a leading US import firm in model train industry, is worried about Washington's threat to slap more tariffs on remaining Chinese imports, saying that it would force family bread-earners in the industry to lose their jobs.

Usually, the president and CEO of Broadway Limited Imports visits one of his main suppliers in the Chinese port city of Qingdao each June, to discuss the implementation of this year's working schedule and make plans for next year, which is now heavily clouded by the proposed additional tariffs.

"Well, if we woke up one day and all of a sudden there's a tariff, What are we going to do? It's a difficult thing for us," Grubba told Xinhua in a recent interview at his office in Ormond Beach, Florida.

Almost everything manufactured in China

The United States in May raised additional tariffs on US$200 billion worth of Chinese imports from 10 percent to 25 percent, and threatened to levy extra duties on more Chinese products.

With the threatened tariffs looming on the horizon, toy-makers include Grubba were anxious that the industry would take a big hit as 85 percent of the about US$3 billion worth of toys sold in the United States each year come from China.

"If we were to have the 25-percent tariffs imposed on this product, if we couldn't find a way around that, it would probably put us out of business," said Grubba, who has been working with his partners in Qingdao in China's Shandong Province for almost 20 years.

"This whole industry, almost everything in the industry is manufactured in China," he said.

Most of these companies have a "profit margin in the range of 30 percent," and if they were to pay a 25-percent tariff, the left 5 percent will not be enough for them to pay rent, insurance and other bills, according to Grubba.

"We would have to raise prices. A certain number of people just can't afford it anymore ... That will be a big problem for us," he said, adding that some of his model trains were sold at an already expensive price.

The model train industry in the United States is a fairly small business but a lot of companies and people are involved, Grubba said.

"Around 500 people that work for manufacturers like us, the importers and manufacturers, but that doesn't include all the hobby stores," he said.

"There are probably 1,000 hobby stores in the United States that sell this type of product. Each of those ... maybe ... got five to 10 employees, so that's another 5,000 people. I think those hobby stores would probably close," he added.

The idea to relocate production out of China is also unrealistic, Grubba said, noting that it is hard for toy industry businesses to find another country with comparable infrastructure, skilled workers, as well as the research and development capabilities.

"It's difficult to move a factory (out of China) because our product is very specialized. It took us a long time to train the workers at the factories and train the engineers and get the quality the way it's supposed to be," he said.

"And if we try to move to another country, then you have to develop that expertise all over again," he said. "That takes a long time (and) a lot of money."

A 25-percent increase in prices, a tariff or a tax on those toys will put 300 of 1,100 members of the Toy Association "potentially out of business," Steve Pasierb, president and CEO of the trade association, told local media when the industry held annual business conference in Minneapolis, Minnesota, last week.

The trade group also added its name to a "Tariffs Hurt the Heartland" coalition letter sent to President Donald Trump and signed by more than 660 companies and trade associations, urging an end to additional tariffs on Chinese imports.

According to The Trade Partnership, a Washington-based trade research and consulting firm, 25-percent tariffs on the remaining Chinese imports would result in the loss of more than 2 million US jobs, add US$2,300 in costs for the average American family of four, and reduce the value of US GDP by 1.0 percent, said the letter.

A "less affordable" holiday season

Many toy companies started their planning for the upcoming holiday season last fall, said Grubba, and everything from product lines to pricing is already set.

"We have product that's pre-sold. We've already settled the amount of money. And it's to be delivered in the second half of this year," he said, lamenting the uncertainty emanating from the tariffs has "thrown everything up in the air."

The proposed tariffs on Chinese imports will also seriously disrupt this year's upcoming holiday season, which accounts for 50 percent of annual toy sales, according to Rebecca Mond, vice president of federal government affairs for the Toy Association.

The price of toys could go up by 15 percent and as many as 68,000 out of the more than 691,000 employees in the industry could lose their jobs, Mond told local media, citing a recent study.

"Most people that I talk to don't want to go back to that (recession). We want to have prosperity and stable times and peace and back to normal trade," he said.

US retailers also sound the alarm: the upcoming holiday season celebrations would be "less affordable" for Americans should the new tariffs on Chinese goods are put in place.

The tariffs will eventually increase the cost of celebrating Christmas and "disproportionally impact" American families, Douglas Lauer, president and CEO of San Francisco-based ornament store Old World Christmas, said at the public hearings while testifying before the Section 301 Committee under the Office of the US Trade Representative on Friday.

The week-long hearings which will last till June 25 have witnessed hundreds of industries leaders opposing the proposed additional tariffs on Chinese imports.

The average US family spends under 60 dollars per consumer on holiday decorations annually, said a survey from the National Retail Federation.

For Thomas Harman, founder and CEO of privately-held Balsam Brands, the company's products of concern are pre-lit artificial Christmas trees, which require labor-intensive production and are "almost exclusively made in China."

More than 95 million US households display a Christmas tree, and four out of five do so with an artificial Christmas tree, according to Harman.

"We consistently hear from our customers that holiday budgets are tight, and we expect that trend to continue in 2019," Heather Shepardson, CEO of seasonal and holiday company Rauch Industries, Inc., said in her testimony.

About three quarters of imported glass Christmas ornaments come from China, Shepardson said. "No other country has the capacity to manufacture the broad array of ornaments currently made in China and certainly not at the price points that most Americans can and are willing to accept."

A tariff up to 25 percent is "unfathomable for me and my colleagues in our industry," Shepardson added.

Special Reports
Top