Will US tariffs lead to production relocation?

By Daniele Caroli

The global industry is facing the challenge of navigating the unpredictable and wavering tariffs imposed by the US government. Especially, the toy and games industry serving the US market has accelerated its search for alternative sources of supply in order to reduce its dependence on China. According to The Toy Association, China currently supplies around 77 per cent of the toys and games sold in the United States. However, there has been growth in imports from other manufacturing hubs in recent years. Vietnam, India, Indonesia and Thailand have begun competing with Chinese factories by providing access to cheap labour, needed because of the industry’s low margins. Therefore, things looked promising for these countries when US tariffs on products from China rose from 10 percent to 30 and then 145 percent (to temporarily go back to 30 later); unfortunately, they were soon hit by harsh levies, too.

China’s manufacturing know-how

There are well-founded reasons that explain why such a large share of the global toy production is based in China. As Greg Ahearn, President and Chief Executive Officer of The Toy Association, said, China offers “particular manufacturing expertise and the ethical manufacturing processes at the factories”, as well as cheap labour. Furthermore, toys and games to be sold in the United States must comply with strict safety standards that are necessary since those products are to be mainly used by children. Chinese manufacturers are well acquainted with the US companies’ quality requirements thanks to their decade-long experience. To make things more complicated financial and logistical hurdles , in other countries often prove too high.

The USA lack the required infrastructure and labour

The US Administration’s goal is to bring production and jobs back to the United States. However, with regards to the toy and games business, this plan looks like wishful thinking, according to most industry experts. Everything from final packaging to materials such as springs, motors and plastic parts “can’t be replicated here in the US”, Ahearn said. “We’ve shifted parts of our finishing process to the U.S., but these are low-wage, repetitive jobs that are extremely difficult to fill,” Devin Shanahan, co-founder of Los Angeles-based consumer brand Funtazma, wrote on Global Toy News. “Everyone wants to bring jobs back to America, but the infrastructure and labour pool for this kind of manufacturing just do not exist at the scale we need”.

It is difficult to move production out of China

Even moving manufacturing out of China is unlikely, economists say. As reported by Reuters, the case of Huntar, a US-owned toy factory in China, illustrates why. The company manufactures toys for US, Canadian and European sellers like Learning Resources and Play-a-Maze. Manufacturers have to deal with a dearth of facilities and workers with toy making expertise in other countries; heavy equipment that is hard to move and would cost millions of dollars to replace; and, most acutely, no time to solve those hurdles before coffers run dry. Jason Cheung, Huntar’s CEO and a US citizen born in San Francisco, considered moving to Vietnam but few factories have enough space to handle Huntar’s operations. Even if he found a good spot, Cheung would have to train new staff and carry out safety and quality control checks that could easily take months. Moreover, Cheung’s factory is solar-powered, helping ensure profitability in a thin-margin business. It has specific HVAC (Heating, Ventilating, and Air Conditioning) and wastewater systems designed to avoid the environmental risks of spray paint and chemicals used to decorate toys. It owns more than 30 injection machines, each weighing several tons: they are unlikely to be moved easily and it would cost well over 1 million US dollars to buy new ones.

Nearshoring opportunities in Central America

In July, the Ethical Supply Chain Program (ESCP) organised a webinar that examined nearshoring opportunities. These are offered by countries of the Northern Triangle of Central America – Guatemala, Honduras and El Salvador – to the toy industry. Representatives of those countries’ investing committees and owners of local factories that manufacture plastic and wooden toys, puzzles, board games and other products illustrated the advantages linked with the geographical proximity to the US market, the efficient logistics structure, the availability of qualified labour and the compliance with environmental and legal standards. Although tariffs in this case are not high thanks to the Central America Free Trade Agreement, investors might wonder how the US Administration could act in the future if the goal is to reshore, not nearshore, production. Another established manufacturing source in Latin America is Brazil, with its important toy production hub at Laranjal Paulista near São Paulo. But it has been hit by elevated levies as well.

The useful ESCP’s Connect Platform

With more than 20 years of experience in responsible sourcing of toys, the ESPC is now operating across many sectors with certified and assessed facilities in over 50 countries. Data from 2025 indicates that more suppliers are joining the programme in developing manufacturing regions. There has been a 10% increase in Vietnam and a 28% increase in Indonesia. Marketplace, a function in ESCP’s Connect Platform, enables buyers and suppliers in the international toy business to exchange sourcing requirements and capabilities efficiently. Buyers can share their order requirements directly with all certified facilities in the ESCP community, thereby streamlining the qualification and onboarding process. ESCP certified suppliers have no outstanding social or EHS (environmental, health and safety) non-compliances.

About the author
Italian journalist Daniele Caroli has been editor-in-chief and contributor to international trade magazines in the nursery products and toy businesses since 1994. He was President of BCMI (Baby Care Magazines International) and of ITMA (International Toy Magazines Association). Previously, he had worked as a journalist in music and consumer electronics periodicals.