Tariffs & Toys

By Steve Reece

2025 started with good expectations for the Global Toy industry. Many expected market growths after a few tougher years beforehand. To be clear, market data in the public domain, measured up to the midpoint of 2025, shows that the market has grown by around mid-single-digit percentages in many established Toy markets.

At the same time as sell through was performing so well though, the industry has been in turmoil: This is due to the seismic shock caused by the Trump administration's introduction of high tariff rates on imports from many countries. Before we look in detail at the tariff issue, we should first try to understand the significance of this situation compared to other major events in the past. This will help us to work out how risky the current situation is for the toy business.

Black swan events for the Toy industry

If we look at the major black swan events which have unexpectedly affected the Toy industry with significant consequences in recent decades we can look at the following:

1. The growth of the internet – which has truly revolutionized so much, especially, but definitely not limited to, Toy retail.
2. The growth of social media – which has deeply impacted how consumers receive information, share their opinions on Toys and Games and on how we can communicate with them about our products and brands.
3. The global financial crisis of the late Noughties (2000s) – this led to the demise of numerous retailers including important players like KB Toys in the USA, Woolworths in the UK, Quelle in Germany, and others around the world.
4. COVID-19 Pandemic - we all lived this, so we don’t labour this point, but you could not deny how truly disruptive this was for society and also our industry.
5. The pandemic induced shipping container crisis – container shipping prices from the Far East to Europe and North America soared from a typical approximately €2,000 to €20,000+.

The 2025 Tariff crisis

The 2025 Tariff crisis had the potential to be worse than any of these massive black swan events. For the first time in living memory Toy and Game companies in the world’s biggest market saw existential threat whereby they did not know if they could afford to ship the inventory they needed to stay in business. 

At the point in time when U.S. tariffs on imports from China were headlining at 145%, many companies in North America went into crisis mode, and started to batten down the hatches. The number of super qualified, highly experienced and ultra capable people seeking new roles went crazy overnight unfortunately.

Impact on major Toy companies

The major Toy companies were fairly stoic in their public communications on this topic for three reasons:

1. The biggest Toy companies have been diversifying their manufacturing across different geographies for a decade or more, and so a sudden increase in tariff rates on any one country could be at least partly mitigated by shifting more production elsewhere.
2. These big companies did not want to get caught in any backlash from the current U.S. Presidential administration, although they were not entirely successful in avoiding this.
3. They have the balance sheets and access to capital to weather the storm. Moreover, as tariff rates fluctuated throughout the year, they could adopt a measured approach to achieve a blended tariff rate and allocate funds to cover the additional expense. This is a strategy that smaller companies, which do not report to the stock market and rely on cash flow calculations on a day-to-day basis, cannot implement.

Impact on smaller and medium sized Toy companies

Smaller and medium sized companies were hit particularly badly by the uncertainty due to their smaller financial and human resources. If you employ 5,000 people you can probably afford to set up a Sourcing office with 5 or 6 staff in a new geography with relatively little difficulty. If you employ 10 or 20 people, the prospect of sourcing from multiple geographies looks like the stuff of nightmares.

Many media outlets had this down as a USA only issue, but as the world’s biggest market, the reality is that nearly all mature businesses outside the USA have the USA as their biggest export market. And these international companies are still producing the vast majority of their Toys in China and other Asian countries which have been badly affected by tariffs. This issue has had truly global ramifications for: Toy manufacturers around the world; for US retail; and for factories across the world. It has been a truly crazy period of time, and at this stage it is a true relief to see that the majority of 2025 production has managed to ship under just about viable commercial terms versus completely impractical terms which would have led to empty shelves and bankrupt Toy companies.

The severity of the issue should reduce going forward 

What of the outlook for 2026 and beyond then? It seems clear that the apocalyptic tariff rate which were threatened in 145% can realistically not be implemented without a severe financial own goal on the US economy, US companies and US consumers. While the prospect of ‘only’ 30% tariffs or thereabouts is not a positive for consumption of Toys and Games, it is nevertheless possible for things to continue if that persists. However, the concessions and compromises sought by the US government may not remain unchanged. With every day comes the risk of sudden threats to increase tariffs dependent on varying factors, from geopolitical considerations to personality conflicts. This does not make it easy for Toy and Game companies to plan.

Toy companies should be ready to be flexible and to adapt to suddenly changing circumstances ongoing from this point. Those doing business should expect sourcing, diversification and reactivity to continue to be critical areas of business that cannot be taken for granted as they could in the past.

About the author

Steve Reece has been in the toy industry for 25 years. He started out at Hasbro where he was responsible for the brand management of key brands such as Monopoly, Play-Doh and Trivial Pursuit. He now runs a consultancy called Kids Brand Insight, which helps toy suppliers to build robust and diversified supply chains and find the right staff.