1200 G Street NW · Suite 200 · Washington, DC 20005 t. 202.459.0354 · e. info@toyassociation.org

September 6, 2018                                                                                          

The Honorable Robert E. Lighthizer
United States Trade Representative
600 17th Street, NW
Washington, DC 20508

Docket Number: USTR-2018-0026

Dear Ambassador Lighthizer:

The Toy Association™, Inc. represents more than 1,100 businesses – toy manufacturers, importers and retailers, as well as toy inventors, designers and testing labs – all involved in bringing safe, fun and educational toys and games for children to market. With an annual positive U.S. economic impact of $109.2 billion, the U.S. toy industry supports 683,933 U.S. jobs and generates $14.8 billion in state and federal tax revenue each year. Approximately 3 billion toys are sold in the U.S. each year, totaling $27 billion at retail, and our members account for approximately 90% of this market. Importantly, over 95% of toy manufacturers, wholesalers, distributors in the United States are small businesses.

We continue to be strongly opposed to any tariffs being levied on toys, games, toy inputs and other toy-related imports due to the significant negative impact such tariffs would have on the U.S. toy industry and American consumers. The broad scope of the most recently proposed $200 billion list of Chinese imports would significantly impact U.S. toy companies, U.S. toy jobs and U.S. consumers. A list of Harmonized Tariff Schedule (HTS) codes that Toy Association members have identified as being of significant impact to our industry are included in Appendix A. The items include such products as children’s dress up hats, bags to be used in toy products assembled in the U.S., components for toys, children’s furniture, baby gear products, packaging, art supplies, books, magnets, among others.

While we appreciate that toys (HTS 9503) have largely not been included in the tariff lists issued to date, many U.S. toy companies have been impacted by the tariffs that are currently in place. The most recent proposed list of goods to be subject to tariffs, regardless of whether at a 10% or 25% duty rate, would have a significant impact on many toy companies of all sizes. In some cases, particularly for small companies, the impact could be devastating. We would appreciate your office’s consideration of the harmful economic impact tariffs are having and would continue to have on toy consumers and U.S. toy and children’s products companies.

We would also like to note that the ongoing trade dispute with China has resulted in significant uncertainty for toy companies as they make business decisions to adjust for the upcoming holiday season and future toy sales. Whether toys will be on future lists, how long the tariffs would be in place, and whether/how supply chains would be affected are all unknown factors. This is impacting decisions about future manufacturing, expected pricing adjustments or order decisions, impacts on shipping costs, among others.

Toys and toy-related products (such as educational items) are far outside the scope of the Administration’s focus on the technologies and industries included in the “Made in China 2025” initiative that is central to the Section 301 investigation. In addition, including toys in the current or any future tariff retaliation against China would be singularly inappropriate for the following reasons:   

• With China supplying 85% of all toys sold in the U.S. and with no alternative manufacturing capacity readily available elsewhere, tariffs on toys will cause substantial harm to consumers due to higher prices and fewer choices.
• Toy tariffs would lead to projected losses of tens of thousands of U.S. jobs at a time when the U.S. toy industry is already disrupted by the Toys ‘R’ Us bankruptcy and closure.

Impact on U.S. Consumers

With 85% of all toys sold in the United States imported from China, imposing a tariff on toys manufactured in China would have a major immediate impact on the U.S. toy market generally and on U.S. consumers including higher prices and a reduced selection of toys.

Production by U.S. toy companies is well entrenched in China, having developed over decades while companies have maintained product design and other key functions here in the U.S. The efficiencies of this manufacturing arrangement have allowed U.S. toy companies to be among the most competitive in the world, providing consumers with a broad array of safe toys at highly competitive prices.

Given this high degree of integration, U.S. toy companies could not switch to non-Chinese sources quickly or easily. One reason is that Chinese factories have adapted to the seasonal nature of the toy industry, often producing toys only six months of the year and other products during the other half of the year. 

Of even greater importance to U.S. consumers, the U.S. toy industry has invested in ensuring that Chinese suppliers produce toys that comply with the strict U.S. safety standards that protect America’s children and families while at play. Establishing a new manufacturing base elsewhere could thus force companies to move hastily (and at significant cost) to identify and educate new manufacturers of these requirements and develop relationships with them to ensure that the toys are, in fact, compliant.

Last year, Congress passed, and President Trump signed, sweeping tax reform legislation that significantly cut taxes for American consumers and companies alike. These tariffs have the potential to undo the pro-economic growth benefits of tax reform legislation by raising prices for consumers and eliminating American jobs.

Impact on U.S. Toy Industry

Although low-level toy assembly typically occurs in China, the U.S. toy industry maintains essential corporate, design, marketing and distribution operations in the U.S. that would be significantly and negatively affected by tariffs on toys. More than $27 billion of toys are purchased by consumers in the U.S. each year – nearly a third of total global toy sales. Over 80% of those retail dollars remain in the country because of U.S. domestic operations (e.g., production plus wholesale and retail). The most important aspects of creating a toy – research and development, design (including safety considerations), as well as some component manufacturing – occur domestically. On average, about 65% of the more than $14.7 billion that toy companies invest annually in production (e.g., salaries, benefits and material costs) remains in the U.S. These are high-paying jobs that fuel the consumer-driven U.S. economy – exactly the ones we want to keep here.

As mentioned above, the U.S. toy industry supports over 680,000 American workers and accounts for approximately $110 billion in economic value. The viability of these American jobs would be significantly undermined by the imposition of tariffs. In fact, economic analysis has determined that a 25% tariff applied to toys and games would result in the loss of 68,014 U.S. jobs and $3.4 billion in lost wages. Overall, tariffs on the toy industry would reduce the economic impact of the toy industry on the U.S. economy by approximately 10%, or $10.8 billion ¹.

We note that at this point, we are not aware of any toy company that has indicated that the tariffs would result in U.S. manufacturing becoming a viable option. First and foremost, the infrastructure and capacity to manufacture thousands of different types of toys that are often seasonal, is not available. Furthermore, consumers expect toys to be affordable. Toy manufacturing is too labor intensive to be a cost-effective option in the U.S. Also, many toy manufacturing inputs such as plastics and electronic components have been included in previous tariff lists issued by USTR which would also increase the cost of U.S. manufacturing.

The imposition of tariffs would come at a historically inopportune time for our industry considering the bankruptcy of Toys ‘R’ Us. The liquidation of all 800 Toys ‘R’ Us stores and elimination of 30,000-plus U.S. jobs is already having a seriously disruptive impact on the toy industry in this country. Levying what is almost tantamount to an across-the-board 25% additional tax on U.S. toy companies at this time could be crippling. 

While we would like to once again express appreciation that toys as provided for under HS 9503 have not been included on any lists issued by USTR (and express strong opposition to any such inclusion), we would like to reiterate that even the recent list’s broad coverage will have significant negative impacts on U.S. toy companies. We have been contacted almost daily by companies that will be impacted. Some examples of their stories are included in Appendix B.

Tariffs on Toys Will Not Advance Administration Goals

As a general matter, the imposition of tariffs on imports from China is unlikely to meet the Administration’s goal of inflicting maximum pain on China and minimal pain on U.S. consumers. Tariffs are hidden, regressive taxes that will be paid by both U.S. businesses and consumers in the form of higher prices.

The imposition of tariffs on toys specifically is especially unlikely to advance the Administration’s objectives, including the criteria set forth in USTR’s Federal Register notice, for the following reasons:

• Toys are not relevant to the Administration’s stated goal of targeting those products relevant to China’s “Made in China 2025” plan;
• Imposing tariffs on toys would provide little leverage in helping eliminate China’s offending practices as the country has placed little emphasis in promoting and developing its domestic toy industry given the high foreign value (typically U.S.) incorporated in most Chinese toys;
• Tariffs on toys would cause disproportionate harm to U.S. consumers for the reasons detailed above;
• Tariffs on toys would cause disproportionate harm to U.S. toy companies, particularly small- or medium-size businesses;
• China provides full tariff reciprocity on toys (China agreed to eliminate its duties on toys and games as part of its WTO accession negotiation, a crucial step for the U.S. toy industry in building on the earlier Uruguay Round zero-for-zero agreement on toys); and
• President Trump has made it clear that he wishes to protect U.S. jobs, particularly those in manufacturing. Unfortunately, tariff imposition has a perverse negative impact on this goal; it forces U.S. manufacturers to pay more for raw materials and subcomponent inputs (even if these are sourced in the U.S.), leading to job loss to make up for reduced margins on finished items.

In lieu of higher tariffs, we encourage the Administration to employ a strategic policy to address China’s offending intellectual property practices in concert with other major trading partners who share U.S. concerns.

Conclusion

The U.S. toy industry strongly opposes any additional tariffs on toy imports. As detailed above, imposing tariffs on toys and toy-related imports would have a significant negative impact on U.S. consumers, would be devastating to the U.S. toy industry, and would fail to advance the objectives set forth by the Administration.

We greatly appreciate the opportunity to submit these views and would welcome any questions you or others in the Administration may have regarding U.S. toy industry concerns on this matter.

Sincerely,

Steve Pasierb
President & CEO
The Toy Association

¹The Economic Impact of the Toy Industry in the United States (data cited as of August 2017), and the Economic Impact of a Potential 25% Tariff on Imported Toys from China (data cited as of April 2018), produced by John Dunham & Associates for The Toy Association.  

Appendix A

HTS Codes The Toy Association Requests be Removed from the Proposed 301 Import List

Appendix B

Company 1: The proposal to increase the tariffs on 6505.00.8090 products an additional 25% from 6.8% could cause serious harm to our small business. We sell costume wearables, (predominately costume hats), which fall under this designation. We are a U.S. based company that employs 40 people.

The proposed increase in tariff rate is more than five times our previous rate and will have a negative impact on our business, and our mission to share laughter wear happiness. The rates we would have to charge for our hats would price us out of the market for many of those items. The sudden jump of 25% is unreasonable and would have an immediate negative impact. Please consider the impact on our economy and ability to create innovative and novel headwear for US customers, as well our ability to maintain our business and employees and contributions to the community.

Company 2: The impact for us is especially felt for those products imported under chapter 94 as we make children’s furniture of base medal and chairs, and it is a large division for us. These items are already very competitive in the market place and we provide aggressive pricing for the consumers. Any hit with duty would mean we would have to raise our prices and in turn have low sales as many Americans cannot afford more expensive furniture for their children.   

We provide quality children’s tables and chairs with the latest hot licenses at affordable prices for all Americans, a tariff would mean that the average American will most likely not be able to afford them. We have not been able to find any US made factory that can make the same powder coated base metal children furniture. Any duty on these items will not encourage us to manufacture in the US as the cost is still more expensive in the US than in China with the duty. All it would do it is impact the cost and sales and lead to a negative outlook for the company. A loss of sales can in turn lead to a reduction in staff as we need to keep our overhead cost in control.

All other HTS codes which are attached in our list have similar stories. We are competitive in the market to bring quality items to everyday Americans.  Any additional duties on these items would be we would need to raise our price or just stop making them because sales would drop.  Intern, there may be job loss and company reduction.

We ask the Whitehouse to please not impose these tariffs as there is no winner to these duties. The company as well as our customers, the American people will suffer the most.

Company 3: We believe there could be a financial impact to our secondary suppliers for their Chinese sourced products and materials including resins and packaging. Due to the technical manufacturing specifications and product safety requirements, we would not be able to secure an alternative vendor prior to the holiday season impacting sales and product availability.

Company 4: Our company is an American company founded over 100 years ago. We are the country’s leading provider of crafts and craft activity kits for children of all ages. Today, the company has evolved into a supplier of do it yourself (DIY) products, educational toys, puzzles, STEM projects, paper crafting, jewelry making and many more product lines for children of all ages. Our brands are trusted throughout the country for delivering high quality and innovation, allowing children to explore their artistic abilities and engage in play through education. Virtually all the products sold by our company are conceived, designed and tested by the company’s marketing and research teams employed in the U.S. 

We import several items covered on the 301 List 3 such as sand, artists’ paint, cotton thread, pliers. painting canvas, glues/adhesives, wooden sticks and diaries. The 301 List 3 should be modified to exclude these types of products and subheadings under which they are classified. These items represent some of the most basic and essential everyday craft-related items and if tariffs are imposed would only harm the children who benefit from these educational toys and tools.