The big companies are getting hit. Months ago, the shoe industry was speaking out against tariffs. The toy industry is likely to be next.
Despite good sales, Hasbro shares fell 17% in light of the tariffs. Hasbro is being left with no recourse: they either need to move their operations away from China, or take the hit to their profits. Is there a recovery in sight? Or, are we witnessing the beginning of the end for a timeless industry giant?
Let’s find out.
Parallels With the Shoe Industry
Months ago, the shoe industry pleaded with the government to avoid enacting additional tariffs. Tariffs were already quite high, and the fear was that additional tariffs would make it impossible for shoe companies to maintain their sales. Either shoe companies would need to pass the costs on to the consumer, or they would perish.
Toys, like shoes, are general consumer goods. They are things that impact consumer purchasing power. People need to buy shoes, and they need to buy toys for their children. Thus, inflation in these types of goods can hit consumers hard. While smartphones and other electronics have also been hit, these are luxury devices that people can avoid buying, or that people can purchase second-hand.
New Tariffs Proposed of $156 Billion
For companies like Hasbro, there’s no light at the end of the tunnel: the tariffs keep getting worse. The market has rebounded several times upon news that the US-China trade war might quickly be over, but each time the situation has deteriorated. Every time the situation deteriorates, the market sees a loss again. Of course, a company such as Hasbro is not going to go out of business overnight. It’s more likely that smaller businesses are going to go out of business.
And that may actually be important to note. Hasbro’s fundamentals are quite strong, as are their sales. They have diversified into many areas, such as board games, which is one reason they’re getting hit so hard by tariffs. However, should the tariffs be eliminated, Hasbro should be able to rebound quite quickly — and with less competition in the market.
A Plan to Shift Manufacturing from China
Overall, President Donald Trump’s plan appears to have worked for Hasbro: the company is attempting to move out of China. Hasbro is looking at options such as India and Vietnam, and have the goal of sourcing about 50% of their products outside of China. That’s going to be a huge plus for the Indian and Vietnamese economy as well, as more manufacturers may seek to move there.
India has been a bit of a quiet, dark horse in this race. As China and the United States fight it out, India has been taking on more manufacturing contracts. As a country that is currently broadcasting neutral on the global scale, it actually stands to make the most out of the conflict. Just as Canada picked up exporting soy beans as soy beans in the US were levied, India can start taking up contracts that are dropped.
Why Trump Can’t Drop the Trade War
Trade talks between China and the United States are being escalated on both sides. And while these tariffs are intended to bring China in line with the United States economically, there are many more reasons why China would need to be sanctioned.
China has been conducting intellectual property fraud against the United States for decades, which has long damaged the US’s economic footing in terms of innovation. Not only is China able to undercut the United States for manufacturing, but “shadow factories” run copies of anything that’s been manufactured in China, which means that the global market gets access to products at a percentage of the price that the US can sell it at. China has refused to do anything about this.
For Trump, China’s inaction against Fentanyl precursors is a larger issue. China has not stopped the sale of chemical precursors to the incredibly harmful drug Fentanyl, which has been leading to a great deal of deaths in the United States. Additionally, China currently has millions of individuals in internment camps where their organs are being harvested.
All this together places the United States on the scale of both economic and moral right, and makes it difficult for the United States to back down when it comes to the trade dispute — even as the current administration receives some criticism for doing so.