What happened
Shares of Mattel, Inc. (MAT +0.21%), a leading global children's entertainment company specializing in design and production of toys and consumer products, are down almost 5% Monday morning. Mattel's global footprint could cause the company pain as trade tensions between the U.S. and China escalate.
So what
On Friday, the U.S. increased tariffs on $200 billion of Chinese goods from 10% to 25% in a continued escalation of trade tensions that started with three rounds of tariffs during 2018. Those increased tariffs will hit a number of consumer goods companies, especially those in the toy industry -- keep in mind, as recently as 2013 China exported roughly 80% of the world's toys thanks to low labor costs. Now China has retaliated, and beginning on June 1, China will raise tariffs to as high as 25% on roughly $60 billion worth of U.S. imports impacting roughly 5,000 wide-ranging products. To add context to these massive tariff figures, it's estimated the latest tariffs will mean another $500 a year in costs for the typical U.S. household.
Image source: Getty Images.
"The tariff increase inflicts significant harm on U.S. industry, farmers and consumers," Jacob Parker, vice president of the U.S.-China Business Council trade group, said in a statement Friday. "It will decrease the competitiveness of American companies, reduce the efficiency of their global supply chains, and reverberate through the U.S. economy. Pure and simple, this is a tax on the American consumer."
Now what
While the broader tariff impacts are causing a broader market sell-off today, they come at a bad time for Mattel and its investors. The toy manufacturer's turnaround remains ongoing, hindered in 2018 by liquidation of Toys R Us -- and now uncertainty and headwinds from tariffs will pressure the company's margins and supply chain. Unfortunately, the trade tensions are out of the company's hands, and management can only focus on maintaining its position in the toy industry by developing its recognizable brands and capturing new licenses for new toys to restore sales growth.
