Maximum Frustration
Like most of you I’ve been pouring over the news each day only to find out that what I “knew” yesterday is now obsolete. This means lots of man-hours wasted but you have to do it otherwise you risk blindly stumbling into bear traps.
Last Thursday and Friday were whiplash inducing. Courts declared that Trump’s tariffs were illegal and must be curtailed within ten days. Other courts postponed the need to stop tariffs while the legal process plays out (which could mean indefinitely). I’m a bit ambivalent about the courts getting involved. While I would certainly like to see this whole mishegoss settled as quickly as possible; the court action could push the process back a few months. Other countries are less likely to finalize a trade agreement when the tariffs being used for leverage might quickly be declared null and void. On the other side we certainly could see the Trump Administration focused on fighting court battles rather than doing deals. The court action hasn’t solved the tariff uncertainty but rather has kicked a three-dimensional chess match up into the 4th dimension. Topping it all off, the legal decision isn’t even going to stick as the Trump Administration has several work arounds available just by instituting the tariffs under different statutes. To quote Bart Simpson “Aye Caramba!”
As if that wasn’t enough – we then got an explosive Trump tweet blaring “CHINA HAS TOTALLY VIOLATED ITS AGREEMENT WITH US.” Apparently, China has been slow-walking export licenses for rare earth minerals. This was apparently retaliation for the U.S. warning allies not to engage with Chinese company Huawei. Just a couple of weeks after the parties agreed in Geneva to de-escalate the trade war, we learn Friday night from Treasury Secretary Scott Bessent that “for now, the process to get high-level trade talks going has stalled.” Throw your hands up! I’m writing this Saturday morning. Who knows what comes next?
Meanwhile, in the backdrop, the Chinese economy is feeling pain. It was already rocky due to the bursting of an enormous property bubble, but now Chinese export orders have collapsed. Some Chinese factories are offering super reduced pricing while others are halting production and putting employees on leave.
On this side of the Pacific the U.S. toy industry hiring has all but stopped. I’ve even written a template for people inquiring about job opportunities: “Everything is on pause until we gain greater clarity on the tariff situation.” Toy industry furloughs began two or three weeks ago. The economy as a whole hasn’t much felt it yet but in the coming weeks retail shelves are going to start getting noticeably lean.
Toy companies are trying to adapt as best they can by: spreading costs around, tweaking product classifications, consolidating shipping, parking product in bonded warehouses, parking product in Canada and practicing first sale accounting. I guess that for today at least we’re still at the 30% Geneva tariff rate. That rate would cause many toy companies to go out of business and leave others losing money in 2025 and limping badly into 2026. Assuming China can show that they are cracking down on the fentanyl trade, tariffs should end up in the 10 – 15% range. That’s not “good” but it is manageable. I hear a lot of “drop dead dates” when the toy industry needs the tariff situation to be solved by in order to make and ship goods in time to land for the holiday sales season. Most of those dates fall some time during the month of June. Me, I’m using the 4th of July for whatever that’s worth. But hey, that’s today. Who knows what tomorrow may bring.
In the meantime, if you are a company that IS looking to hire, please reach out. I am well rested . . . . . if a bit queasy.
PS: Trump and Xi are supposedly having a phone call this week. It’s Wednesday already…..tick, tick, tick, tick……….
All the best,
Tom Keoughan