Trump’s Tariffs Won’t Raise Toy Prices
Tariffs will not be the Grinch who steals Christmas from America’s boys and girls.
The majority of toys sold in the U.S. are made in China. This has led to alarmist warnings from toy executives and some retailers that steep tariffs imposed on Chinese goods would raise prices for consumers. That, in turn, would supposedly mean fewer presents under the Christmas tree for families already squeezed by Biden-era inflation.
“All anybody was talking about was tariffs,” Jay Foreman, CEO of the Boca Raton, Florida-based toy company Basic Fun!, told NPR, referring to a recent trade show in Florida. “We know that if tariffs hit, that prices are going to go up and it’s going to affect the consumer. And so we’re absolutely in panic mode in our industry.”
But any tariffs imposed by the incoming Trump administration will not take effect until next year, at the earliest. This leaves the toy industry with ample time to adapt, diversify, and move production out of China. There are plenty of developing economies that would love the opportunity to produce the toys sold into the U.S. market.
How China Took Over Santa’s Workshop
The Chinese dominance of toy manufacturing poses a very serious challenge to trade theory. It’s not the result of China enjoying what economists call “comparative advantage” when it comes to the making of toys. Rather, it is the result of Chinese industrial policy.
Comparative advantage, in the context of toy manufacturing, would mean that China produces toys more efficiently relative to other goods it could produce, compared to how efficiently other countries produce toys relative to their own alternatives. In other words, China would have a comparative advantage if the opportunity cost of making toys—measured in terms of the other goods it forgoes—is lower in China than in competing nations.
For example, if China sacrifices less value in electronics or machinery production to make toys than other countries sacrifice in producing software or advanced manufacturing equipment, China would have a comparative advantage in toy production. This advantage would arise not from absolute productivity or cost leadership but from the relative efficiency of producing toys compared to other industries within each country.
In theory, comparative advantage would lead to trade that benefits both parties, with each country specializing in what it does best relative to its alternatives. However, the Chinese dominance of toy manufacturing does not align with this principle. China is not focused on selling toys to the U.S. because the U.S. is focused on selling some other product to China.
Rather, China’s toy dominance stems from decades of deliberate industrial policy, aggressive subsidies, and a willingness to exploit low labor costs and lax environmental standards. This dominance reflects not the natural efficiencies of comparative advantage but a strategic effort by China to capture global market share, often at the expense of other nations’ industries. As a result, the reliance on China for toy production is not an economic inevitability but a consequence of choices—choices that tariffs could compel the U.S. toy industry to rethink.
Perhaps the biggest mistake many economists make when analyzing tariffs—and they make a lot of them—is to assume that the status quo is the result of market processes and that the imposition of tariffs by the U.S. will result in inefficient manufacturing. In reality, the status quo is the inefficient outcome produced by China’s industrial policy. Trump’s tariffs can break the economy free of China’s policy and nudge it toward something much healthier.
Trump’s tariffs, far from being the Grinch, may well be the unseen Santa, bringing the gift of a healthier trading system to the good little boys and girls of the world.
