One Hole Ahead of the Hammer
The crazy year continues from plagues to locusts, wildfires to hurricanes, Charmin shortages to murder hornets – I even hear rumors of a hot new hair metal glam band called Hunter Biden’s Laptop….but I cant seem to find any information about them. I’m feeling like the last of the Whac-a-Moles forever one hole ahead of the hammer.
Through it all the toy industry has survived, some product categories like puzzles, games, arts and crafts and big outdoor toys are even having their best years ever. Other producers of movie based product have been having a very tough go. That said, overall things seem to generally be getting better. I must say that I was completely taken by surprise by Mattel’s stellar third quarter earnings numbers.
I’m pretty much winging this piece because there really isn’t much new. Covid Time drags into it’s ninth month and there is no real end in sight. We’re still muddling through but the muddling is better. Even as coronavirus case counts rise business is improving.
After a four month long backyard barbecue intensive, toy industry hiring slowly started to return in mid-July. September was an inflection point towards stronger hiring trends. As I write this Toyjobs is going pretty much full throttle although it remains to be seen how long this pace will continue. The number of searches that we are currently working on is not accurately reflected on our job board. There are two reasons for this. First, I like to do my work reaching out to the candidates that I think are most appropriate before inviting everyone else to raise their hands. Secondly, there are several underemployed headhunters out there who spend their time reading our job board in the hope that they can glom onto a search that we’re already doing. I can’t think of a single reason why I should help them do that.
In most industries, companies get new budgets at the beginning of the year and can start any additional hiring immediately. The toy industry tends to run a little differently. Toy sales are so fourth quarter loaded that most companies want to get their results and crunch their numbers before finalizing their future plans. Additionally, in a typical year, the toy industry spends most of January and February criss crossing the globe to attend what can only be described as too many trade shows. Also, the toy industry is so seasonal in nature that many companies start their fiscal year on April 1st. These factors usually cause a delay in start of the year hiring which usually takes off in March and April.
In 2021, things could be different. While companies won’t have done all of their calculations by early January, quite a few of them will already know they have done quite well. When you factor in that nobody is going to be traveling in January and February, I see toy industry hiring taking it’s next leg up in about the third week of January. Unfortunately, I don’t really see Covid-19 coming to an end and things beginning to return to normal until August or September. That said, if you have to go through a pandemic it is far better to be employed than not. We here at Toyjobs will being doing out utmost to get as many people hired as possible.
….Yes, I know we get paid for that, but that doesn’t mean it isn’t helpful!
Keep your heads down and your hands clean!
…..and your fingers crossed!
All the best
What a Long Strange Trip It’s Been
In the words of Bart Simpson “Ay Caramba!”
At my age you rarely get the opportunity to take a four month long backyard sabbatical but that’s exactly what I did. Nobody was hiring and it didn’t make any sense for me to be reaching out to my clients and pestering them when I knew they didn’t need my services. So sabbatical it was. After quickly tiring of interminable White House Coronavirus Task Force Briefings, I focused on perfecting my barbecue techniques.
Meanwhile, depending on the product category many toy companies were knocking it out of the park. With both parents and kids staying home – together – 24 hours a day, 7 days a week! – parents had to find something – anything – to occupy the youngsters. Early on games, puzzles, activities and crafts were flying off the shelves. By late spring and early summer outdoor toys, scooters and inflatable pools were quickly sold out. On the other hand, makers of action figures, plush and vehicles were struggling.
During this period, I had several searches that had been put on hold so I continued to check on those and diligently monitored the job boards to see when activity would pick up. And there is was. As I sort of expected in mid-July the market for toy industry jobs started to bubble up under the surface. This made perfect sense as the 2021 sales cycle for toys would be beginning in mid-September. Companies who want to add to or upgrade their sales staffs have to move quickly. Toyjobs traditionally gets a big jump in search starts in late July. So we did get a bump but it has been much more subdued than usual.
Since retailers have stopped physical meetings; sales people can cover more ground since they don’t have to travel (pun intended). In conducting business by Zoom or Microsoft Teams companies can make do with less sales staff. That said, making do is not optimum. Most sales executives can’t help but feel that they could have gotten that one or two extra items on the shelves if they had met in person. Also, it’s pretty difficult to really further a relationship with a Buyer when you’re playing Hollywood Squares. So, while it’s good to save money now, toy companies will eventually want to get back in front of buyers and will need additional sales staff to do that. Retailers, on the other hand, may decide that virtual only sales calls makes their Buyers more efficient. I can certainly envision Wal-Mart and Amazon moving that way. As in all things, retailers will call the tune and manufacturers will just have to fall in line. It will be interesting to see how it plays out.
How do I see Covid-Time affecting the toy business moving forward? This is by no means a complete list but here are some quick thoughts:
- Hiring- While hiring is just starting to pick up it is at a very subdued level. Even though many companies have done extremely well, we are in a very low-visibility environment. Will there be a vaccine? How long will it last? Who will be President? What will that mean for the economy? What will that mean for relations with China? Will virtual sales calls become the norm for the long term? I expect hiring to grow but slowly and off of a zero base until next June or so as companies continue to play things close to the vest. By June we should be out of the pandemic; we will have a clear picture on sell-ins for the holidays 2021 and… hopefully…we will know who our President is going to be for the next four years.
- Work from home– I think we will replay the script from the financial crisis. For several years companies were doing a lot more remote work but by 2015-16 I was seeing a huge pushback from employers. Teams were nowhere near as efficient. Unless you were parked in Bentonville or Minneapolis companies wanted their people in the office where teams could work together more efficiently and companies could build a corporate culture. That said, by 2016 companies were also more relaxed about working one day a week from home. I expect that too will continue.
- Supply chain– It has become cliché that Covid-19 has accelerated all the trends that were in place already. This is very evident in supply chains. Trump’s China policies had already jump started an effort by toy companies to diversify their supply chains if only to avoid tariffs. All types of businesses have recently seen up close and personal the danger of having too concentrated a supply chain and that will accelerate the diversification process. Lastly, it’s not just Trump, the entire Washington establishment has moved decidedly in an anti-China direction. Regardless of who is President, the U.S. and China will have, at best, a strained relationship into the foreseeable future.
- Retail- The shutting down of the economy has greatly accelerated the collapse of brick and mortar retail. Will some of the retailers who are now on the ropes bounce back when the pandemic lifts? Sure, but many of the ones that were wobbly even before Covid-19 will be gone forever. The good news is that manufacturers have learned to be much more effective at online marketing and online sales although sadly, online selling squeezes margins. Additionally companies that began online are now opening physical stores which is a trend that is likely to grow. The move to omnichannel retail is happening even faster than before. Joseph Schumpeter are you listening?
- Toys ‘R’ Us– Does anybody remember Toys ‘R’ Us?
So that’s my two cents. I may be wrong about any or all of it. Fortunately, for the toy industry it is always stormy seas so we’re used to scrambling. Very cautious optimism is the phrase of the day. We’ll muck and muddle through. I look forward to a very happy second half of 2021!
Keep your heads down and your hands clean.
Tom Keoughan
Time Warp to Toy Fair
Once upon a time, in a land far far away and a long long time ago…..
…..there was a New York Toy Fair. It all kicked in on a Friday night with the Toy of the Year Awards. The night belonged to MGA Entertainment as L.O.L. Surprise was named Toy of the Year. In accepting of the award, company president Isaac Larian was surprisingly well behaved…mostly. L.O.L also garnered awards for Doll of the Year and Collectible of the Year. As usual, Mattel and Lego also had good nights each winning several awards although Hasbro was strangely absent.
I always enjoy seeing smaller and newer companies win and it was great to see WOW! Stuff’s Harry Potter Invisibility Cloak and Zuru’s RainboCorns Sequin Surprise take home the hardware. I also enjoyed seeing Playmobil take home an award as I can’t recall them winning one before.
The big innovation of the night was the shout out to toy creators and designers. These people are the soul of our industry and deserve much more recognition than they regularly receive. It was a good move to see them recognized on the screen but they should be put in the evenings program and anywhere else we can think of as well.
The Toy Association did its usual suburb job organizing and hosting the event. The only thing I’ll note is that we seem to be running out of room-we may need a bigger space. It’s a credit to the Toy Association that more and more people are attending this event every year.
As I hit the world’s hardest floors at the Javits Center on Saturday morning the word on everyone’s lips was “Shaq….” “Shaq…” “Shaq….” As the larger than life Shaquille O’Neal cut the ribbon at the opening ceremony. Kudos to Basic Fun for the landing him as the spokesperson for their Tonka brand. That coup should help them drive a lot of business.
I spent most of Saturday on the main floor and while attendance seemed a little light it was picking up by the afternoon. That had to be expected as travel restrictions and the closing of the China Pavilion meant that much of Asia was not in attendance. I spent much of Sunday in “the basement” and traffic appeared to be stronger.
It wouldn’t be a New York Toy Fair without the Women In Toys Wonder Women Awards dinner. Genna Rosenberg and Jennifer Caveza did a fantastic job as always. Everything appears to run so smoothly but there must be a lot of scrambling behind the scenes to put it all in place. Maybe I’m wrong about that. Maybe they just have it down pat. The event has grown to be so popular that like the TOTY’s they may need a bigger venue.
February 23, 2020: Women In Toys Wonder Women Awards at Pier 60, Chelsea Piers, New York, New York. (Photo by Edna Holifield)
Kudos to Ashley Mady on her Presidents-Award as she steps down from leading WIT for the last 6 years. The organization has added many new programs which have lead to substantial growth under her leadership. Incoming president Janice Ross will certainly do an equally excellent job.
Ashley Mady, Former President, Women in Toys, Licensing and Entertainment (WIT) poses at the 16th annual Wonder Women Awards, on Sunday, Feb. 23, 2020 in New York. (Photo by Diane Bondareff/Invision for Women in Toys, Licensing & Entertainment/AP Images)
Monday morning I was bouncing all over the place during my Monday Mop Up. Tuesday, at the crack of dawn, I hopped a flight for my annual “Escape from New York” trip to New Orleans where the weather was warm, the food was fantastic and the music was flowing.
I would like to congratulate Steve Pasierb, Marian Bossard and the entire Toy Association team for their excellent handling of the NY Toy Fair under difficult and constantly changing conditions.
Which leads up back to present day reality…..
The toy industry has been hit by a double whammy. First, the supply chain got whacked and now I am hearing that retailers are playing coy about finalizing orders. My extremely unscientific survey of the dozens of senior toy executives that I speak with each week has indicated that many/most factories started running again during the first week of March but with only about 30% of their workforce. Last week, I was hearing 50%-60% of workers had returned. That said, there are still problems with materials and components as the entire supply chain has been affected. Additionally, trucking to the ports has been disrupted by a shortage of drivers. Consensus seems to be that if the China supply chain isn’t somewhere approaching normal by early April the warning lights will go off and if they’re not there by May 1st the red alert will sound.
Retailers could help solve the second stage of the problem by starting to firm up orders as production comes online rather than playing their usual game of trying to push all of the risk onto their suppliers. They can’t expect to have both just-in-time inventory and just-in-time ordering.
Fortunately much of the toy industry is accustomed to navigating perilous waters. We’ve gone from product safety panics, to the financial crisis and from the collapse of Toy‘R’Us to the coronavirus. The toy industry is used to operating in troubled times and has learned how to quickly adapt. I think we’re also getting better at seeing crisis around the bend. Once factories are fully up and running – material costs will likely rise. For now, keep your head down and keep moving things forward as best you can. If we can put the Coronavirus behind us by mid-summer it is likely that an enormous wave of good feeling will wash across the land. The holiday sales season could be YUUUGE!
I’m no expert, so rather than listen to me drone on about COVID-19 I hope some of these articles are helpful and actionable.
Keep your head down and your hands clean
LIVE LONG AND PROSPER!
Toy Industry Navigates Constant Crises
Is it just me or does the reporting on 2019 annual toy sales seem a bit wonky. It’s a bit incongruous that annual U.S toy sales (as reported by NPD) would be down 4 percent while the National Retail Federation is reporting a 4 percent increase in overall holiday sales. In addition we’ve been in a favorable economic environment with strong employment numbers, rising wages and solid household balance sheets. As expected, weaker retailers such as Kohl’s, Macy’s, J.C. Penney, and Gamestop fared poorly but off-price chains like Costco and TJX hit it out of the park. Overall fourth quarter revenues at Amazon rose 21 percent and indeed online sales as a whole rose 19 percent during November and December. Of course, the high cost of doing business through Amazon means that vendors must absorb a margin hit. We are left anxiously awaiting reporting from retail behemoth Wal-Mart.
Target seems to be a special case. Some of their woes likely stem from inflated expectations. Why did they expect holiday sales to jump by 4 percent? Did the population increase by that much? I don’t think so. I suspect that the Toys ‘R’ us.com/Target tie up happened too late in the year to make much of a difference. With Disney’s recent movies pretty much tanking, Target’s Disney “store-in-store” promotions likely hurt Target toy sales. While those initiatives may not have had much success in 2019, I expect that they will have a much more positive effect longer term.
So What happened? Where did the billion dollars go? First off the shortened holiday selling season made for very tricky comparisons. Secondly while NPD tracks about 80 percent of toy sales perhaps something important happened in that missing 20 percent? Lack of a screaming hot product to draw people into stores certainly hurt. Even previous standouts like Paw Patrol and PJ Masks have started to slow. Honestly though, I suspect that the demise of Toys ‘R’ Us continues to be the biggest factor. TRU carried an incredible array of merchandise which drove increased impulse sales once they were able to get people into the stores. More importantly toy giants like Mattel, Hasbro and Lego etc. had acre upon acre of real estate to both drive incremental sales and act as billboards for their wares. In the near term there is no way for those major companies to replace those sales. They may remain the largest toy companies but they will be smaller largest toy companies into the foreseeable future.
Speaking of Toys ‘R’Us we have haven’t heard much from them since holiday selling ended. The Candytopia tie up has led to a lot of consumer criticism over exorbitant ticket prices which cost a family of four about $100 bucks just to go in – and that’s without actually buying anything. On the other hand, the two Toys ’R’ Us experience based stores received an extremely positive response. That said, a handful of stores isn’t going to move the needle for overall toy sales. Hopefully these two experiments were “funding pageants” for proof of concept in a hunt for outside investors who can provide capital for broad expansion. If that’s the case, the Candytopia experiment could simply fall by the wayside and efforts can be focused on the TRU/b8ta side of the equation. After all, there is an awful lot of empty and presumably cheap retail space available out there.
The biggest recent news in toy world was the signing of a Phase One Trade Deal between the U.S. and China. The deal is a de-escalation of the two year trade war with the U.S. committing to not impose any additional tariffs on Chinese made goods and also roll back some of the tariffs already in place. As for China, they will stop conditioning business licenses and permits on tech transfers to joint venture partners. They will also make it easier for U.S. intellectual property owners to prevent infringement and will impose stiff criminal penalties on violators as well as obligate the Chinese government to crack down on piracy and counterfeit goods. While that doesn’t include everything that the U.S. was demanding, it is much more inclusive than most people thought a Phase One Deal would be.
While President Trump says that talks on Phase Two will begin immediately few people expect anything concrete to happen before the U.S. elections. Phase Two is going to be the hard stuff, the stuff China is likely to say no to. It will include U.S. demands for China to cease subsidies to state owned enterprises. I can’t imagine that China will easily agree to change the way their economy is organized – especially since it’s been working so well for them. Other topics will revolve around the Made in China 2025 program designed to make China an advanced technology manufacturing powerhouse. I can’t imagine that China will agree to abandon that. What would we say if they asked the same of us. I suspect that the current status quo will hold until after the elections so the toy industry should be safe from the tariffs for the 2020 holiday sales season. Beyond that – who knows – it’s difficult to see clearly into the future when the world is changing 140 characters at a time.
We do know that the U.S. and China will continue to have conflicts in the future over broader security issues with or without Trump. The U.S. and a rising China will continue to battle over technological, security and ideological issues not to mention territorial issues in the South China Sea. Even while signing the Phase One Deal the U.S. has been seeking to limit the international expansion of Huaweii in 5G telecommunications while stepping up federal funding for U.S. 5G research. Toy companies would be well advised to continue to diversify their supply chains as conflict between the U.S. and China is far from over.
Diversifying the supply chain just got a whole lot harder with the advent of the Coronavirus. Chinese manufacturing is mostly shut down for the Chinese New Year holiday. The holiday period has already been extended but factory closures could run even beyond that. Transportation is being limited and moving around China will be very difficult for the next few weeks if not months. The good news is that the Coronavirus is much less deadly than SARS or MERS for now (viruses mutate) but, the bad news is that it is spreading much more rapidly. At the current time we don’t even know what we don’t know but the virus has started to show up in other Asian countries that might be prime candidates for supply chain diversification. Numerous airlines have suspended flights to China and if the contagion spreads that could affect other countries as well. I don’t want to sound alarmist but at this time medical scientists don’t know when they will get their arms around this. The one thing that seems clear is that things are not going to come under control quickly.’
Click through to John Hopkins Interactive Coronavirus map here.
In all of my years in the toy business I have rarely seen a period of extended smooth sailing. After all, we are in a seasonal fashion business – despite what Hasbro and Mattel may want Wall Street to believe. From product safety stumbles, to resin price spikes, to the financial crisis, to key retailer bankruptcies, it is one crisis after another. Technology has caused not only information but events to come at us at a faster and faster pace so that crises now seem constant. Only the cautious continue to survive over time. We’ve all seen many examples of “geniuses for a day” who quickly go down the tubes. Coleco anyone?
My best advice (not that anyone cares) to both companies and individuals is to adopt a defensive posture while looking for opportunities. Today’s champions are often tomorrow’s flotsam and jetsam. Rather than charging willy nilly into the fray, be fast followers keeping a wary eye on who ends up on the rocks and who makes it through the rapids. Then nimbly navigate the crisis du jour. ‘Tis nobler to finish second again and again and again than to come in first only to perish on the next go-round. There ain’t nobody handing out gold medals.
See y’all in New York
Tom Keoughan
China-China-China-China-China-China-China!
The Holiday Shopping Season is in full swing and sales are strong. U.S. shoppers increased spending over last year by 16% during the five day period between Thanksgiving and Cyber Monday. According to the National Retail Federation shoppers spent an average of $362 on holiday items compared with $313 a year ago.
Note: Seasonally adjusted Source: Labor Department via St. Louis Fed, The Wall Street Journal
Driving spending is a strong job market with an unemployment rate of 3.5%, it’s lowest level in fifty years. This has led to an increase in wages of 3.1% over last year. Wages for lower income groups have been growing faster than for those in higher income cohorts. The upper crust is also feeling better about things as the stock market continues to hit record highs. One gets the feeling that this could be a record breaking Holiday Sales year. That said, the numbers may turn out to be a bit wonky since there will be six fewer shopping days between Thanksgiving and Christmas but that is really more about how the counting is done than the amount of actual spending.
Source: Vivian Ngo, The Wall Street Journal
The economy continues to plug along at about a 2.1% GDP growth rate, down from 2018’s growth rate of 2.9%. I think we can chalk that growth rate decline up to one factor-tariffs and tariff worries. Current tariffs and concern over potential future tariffs have made it difficult for companies to plan ahead and have caused weakness in business spending on plants and equipment. The strong employment picture could be even better if companies were better able to predict what their profit margins and even prices would be moving forward. Toy companies are telling me that 2019 business is good and that they need to add people but that they are reluctant to do so until they have greater clarity on tariffs. I think this is likely true for lots of different business segments. If a trade deal with China is reached, I would not be surprised to see employment and economic growth numbers that are even stronger than they already are.
Hopefully we will have answers soon with tariffs set to be put on $150 billion of consumer goods made in China on December 15th. While much of the chatter seems to indicate that there will be a face saving partial deal at about that time there is also a lot of negative posturing being used as a negotiating tactic. Ever the cautious optimist, I am inclined to think that some sort of “skinny deal” will be announced where everyone gets to declare victory and kick the heavy lifting down the road but…..who knows? Even if a deal is announced it won’t be exactly built on bedrock. Anything can change on any given day with any groggy 4AM tweet.
In the meantime may everyone enjoy a strong “sell through season” and may you and your loved ones enjoy happy and peaceful holidays.
Tom Keoughan
Apocalypse Postponed
By now, the Dallas Fall Toy Preview follows a familiar script. We arrive and everybody grumbles, “There’s nobody here” and “This place is empty,” but by the time that the Opening Night cocktail party gets underway, everybody realizes that things are actually going pretty well.
This year there was strong retailer presence with very few new no shows aside from Big Lots (shrug). That said, I did notice that a few additional substantial manufacturers were not exhibiting and that the 8th floor had all but disappeared.
There were the usual questions and concerns about having three trade shows in three locations over the same two or three week period. “How will the Toy Association fix this?” Personally, I’m resigned to the view that they won’t. Mainly because most of the toy manufacturers involved are reasonably happy doing what they’re doing. Companies showing in Los Angeles are happy showing in Los Angeles and are equally happy that half of the industry isn’t there diverting attention away from their product lines. Companies showing in Dallas like showing in Dallas as long as the buyers show up. It would, however, be helpful if Kohl’s and Meijer would attend so we can avoid treks to Grand Rapids, Michigan or Menomonie, Wisconsin. From what I’ve been told there was much less of an early October presence in Hong Kong. It’s probably too early to call that a trend, especially since it’s difficult to tease out the deterrent effect of the ongoing Hong Kong street protests. We should be able to get a better read on that next year.
By Thursday afternoon, most toy manufacturers in Dallas were telling me that they had very productive meetings with retailers. They also said they were able to create additional interest by laying out their entire product range. Additionally, I heard about a lot of positive surprises coming from walk-ins. The Dallas Toy Preview remains an exercise in quality over quantity. Continued success of the show will depend on The Toy Association maintaining and preferably increasing the breadth of retailer participation.
Source: justplayproducts.com
Recently, consolidation has been in the forefront of toy industry news. Jazwares has bought Wicked Cool Toys and Just Play is closing in on a purchase of Jakks Pacific. It’s interesting to note that most of the major players involved are former Jakks employees. Michael Rinzler and Jeremy Padawer were long-time Jakks employees who quickly built Wicked Cool into an exciting and innovative company. Both Geoffrey Greenberg and Charlie Emby previously sold toy companies to Jakks and then worked for them for a spell. They founded and built Just Play into a toy industry powerhouse. All this makes one wonder what Jakks might have become if it wasn’t saddled with such inept senior management.
Source: wickedcooltoys.com
Toys ‘R’ Us continues to create headlines but I suspect little else. Last time out, we discussed their 6 store “Flea Market” model where they will rent space and then in turn rent it out to toy manufacturers to try to sell their wares. With that they will also provide “powerful analytics” but since those will be based on such a small sample they aren’t of much real value.
They have now partnered with Candytopia on a two store “experience” model. Reported entry ticket prices look like they will be deal breakers for consumers. Reportedly it will cost $20 per child and $28 per adult to enter “the experience.” That means it will cost a family of four $96 before even thinking about purchasing a “shut up” toy on the way out. This is the opposite of the old Italian Restaurant model where everyone leaves happy after a free shot of Sambuca. Instead, it sounds like a lot of unhappy kids walking out the door with a roll of Smarties. Paying $96 to end up with a car full of crying kids doesn’t sound like an exciting prospect. Maybe families will go once…maybe.
Source: linkedin.com/company/trukidsbrands1/
Lastly, TRU has announced that it has essentially outsourced its startup e-commerce business to Target. That sounds to me like the actual owners of TRU Kids Brands won’t give management the money necessary to build or buy their own e-commerce platform. If the owners of the company don’t have any confidence in the holdover management from the Toys ‘R’ Us’ collapse, why should we? TRU should have had a first mover advantage in kids e-commerce twenty years ago and have flubbed it numerous times since. Unless they can come up with some spectacular content that isn’t available anywhere else (put me down as skeptical), I don’t see them becoming the hot go-to location.
TRU Kids Brands “strategy” looks like a shotgun approach of schemes by a company that has no money, doesn’t want to spend any money, but wants to convince both toy manufacturers and consumers to give them money while they milk their brand for what they can, while they can. Even before this new reincarnation, the Toys ‘R’ Us brand had been badly damaged by shoddy stores, bad management, and undercapitalization. I don’t see anything different here except a fresh coat of paint.
Source: insidethemagic.net
That said, it’s good to see Target really stepping up and looking to grow its toy business. The Toysrus.com deal should help them to jumpstart that, at least in the beginning. After a few years I expect that Target will have eaten whatever lunch TRU has left. Putting miniature Disney stores into its locations should be a much more powerful long-term growth driver. Unfortunately, with Target one must always bear in mind the words of Mark Tritton that will forever ring in infamy: “We will refuse to accept any new cost increases related to tariffs on goods imported from China.”
Which brings us to tariffs. Late Friday, the US and China reached a truce on trade war escalation. While an all-encompassing trade deal would be better than a partial deal, a partial deal is better than no trade deal at all. Since the details still haven’t really been worked out, it’s better to view this as a cease-fire rather than even a partial deal. But that’s still better than continued trade war escalation.
Source: scmp.com
Next week’s planned increase in tariffs to 30% from 25% on $250 billion in Chinese imports has been put on hold. In return, China will greatly increase purchases of U.S. agricultural products. However, planned December 15th tariff increases on a wide array of consumer goods remain on the table at this time. Both parties are said to be discussing Chinese intellectual property rights, forced joint ventures, and technology transfers and increased U.S. access to Chinese markets. Those negotiations will be hard fought, and the devil is likely to be in the details. For a final deal to be struck, the Trump administration is going to have to give up its demands that China end its support for state-owned enterprises. The Chinese are not about to change the way their entire economy is organized – especially when for the last thirty years, it has been working very well for them. Also, the U.S. will have to cease demands that China dismantle its Made in China 2025 New Technology initiative. That demand is ludicrous. Its not hard to imagine what the U.S. would say if China demanded that of us.
I have no special knowledge or shining track record of predicting the future, but if I were to prognosticate – my guess is that there will be a series of “skinny deals” which will both allow a number of declarations of victory as well as eat up the calendar moving toward Election Day 2020. Only after the election will the U.S. reduce its China 2025 and state sponsored entity demands. In other words, I believe that the process is to a degree being staged managed. That doesn’t mean that the players have complete control over it and it doesn’t mean that things can’t still go wrong. It also doesn’t help companies making plans for business year 2020. Proceed with caution. Steady as she goes.
All the best,
Tom Keoughan