Excuse me a second while I climb up on this thing...
Recently I stood next to a giant screen that said I was not a lawyer. I am also not an economist, but I do have this problem where I read thousands of words a day, and sometimes they venture into worlds where I have no expertise. When that happens I learn new things, which I love doing. Learning is fun.
Today, we will violate a rule I've tried to keep in place since I began this blog. This blog is about our businesses, mostly, and therefore I've avoided my political beliefs throughout this thing. Sometimes we are forced to talk politics though, because things in the political climate can have an effect on our industry. Sometimes that effect is local, felt by one or two stores in a municipality, and sometimes that effect is potentially devastating to every tier of the industry.
Tariffs are one of those things.
Let's start with the basics, for those of you who don't have a desire to fall into a Wikipedia hole that leads to you spending hours on the World Customs Organization website.
A tariff is a tax on imports or exports between two sovereign nations. These taxes have a root in protectionist and isolationist policies. The first ever major act of Congress (under the Constitution, not the Articles of Confederation) was the Tariff Act of 1789, signed by George Washington on 4 JUL 1789. It's purpose was to both protect a fledgling American manufacturing system, but also to assist in the payment of debt incurred during the fighting of the American Revolution. Some of these tariffs were high simply so that Americans would learn to manufacture those things for themselves; a 50% tariff on steel, ships, cordage, tobacco, salt and cloth. These tariffs helped the north industrialize and the south become the agricultural powerhouse it became, as it was far more cost effective to make our own steel up north, and to grow our own cotton and tobacco down south.
So, let's end tariff history, and talk about the disastrous and immediate effect that tariffs would have on our industry. We're going to use some fuzzy math here, and some real math. I've gotten to talk to numerous publishers about costs, and done some work for publishers, and the target is somewhere between six times and eight times, depending on the company.
Six times to eight times what? Oh yes, that needs more context. Let's take a $100 board game as an example because it's easy math, and I like easy math.
$100 retail = $12.50 to $16 manufacturing cost
That means the publisher 'makes' $24.. to $27.50 for each copy the ship to distribution, and distribution 'makes' $10 per copy they ship to retail, and retail 'makes' $50 for every copy they sell. At each tier there are more expenses, and variances in discount tiers and sales prices, that makes those numbers flexible, but you get the general idea.
So, let's say a publisher makes 40,000 copies of that $100 game at a cost of $12.50 per, and suddenly they are faced with a 30% tariff on the contents of that box.
40,000 copies * $12.50 = $500,000
$500,000 * .30 = $150,00 $150,000/40,000 = $3.75 per copy
So, now the effective cost to that publisher is up to $16.25. (One of the things I'm going to completely gloss over is that a publisher who needs to print 40,000 copies to meet demand might only be able to afford to print 31,000 under these tariffs. What does that do to us?)
To maintain their eight times margin they need to pay their bills the retail cost of that package is no longer $100.00, it's now $130.00. Cost to distribution is now $52, and cost to retail climbs from $50 to $65.
The simple argument, and the short-sited one, is "Make the stuff here." Well, that begins a problem for us as well. China manufacturers 62 million tonnes of plastic annually, while the US is responsible for 49 million tonnes. The Chinese number has climbed more in the last decade than the US number, and you don't need any fingers to count the US plastics factories that are not currently producing plastic. There isn't one. There isn't a single defunct US plastics factory (I'm making this statement after a few hours of research, there could be one I couldn't find, but my GoogleFu is strong). So, in order to fill the demand for American manufacturing of plastic goods for the game industry how many new factories need to be built? I can only imagine, because without a survey of every publisher I'm friends with to discover how many factories are being used I can't begin to fathom how many different factories are producing plastics for board games.
Worse, we're not even number two in plastics production. If publishers begin to leave China and ship production to the EU, will the current political climate see punitive tariffs levied on our allies?
Oh, and we've only talked about plastics. What about game boards? What about all the other components that make up our hobby? Tiles? Boxes? Backing boards? Does the US production capability exist to bring all of this manufacturing home? Many types of rubber manufacturing were completely eliminated from the US by EPA regulations (I'm thankful for that, I like breathing, even though you can't tell some days when I'm chain smoking), and unless we gut those regulations (don't get me started) some of that manufacturing can't ever come back here.
What will it cost to build new factories? Staff them? Get all the bits and bobbles and pieces made here? I once asked a company that very question, and was told "Prices go up ten to fifteen percent," but he also said that it would take five to ten years to meet current demand because they'd have to build/buy/convert factories to do the required work.
Can our customers handle a 30% increase in prices? Many of us are dealing with wage hikes and waiting for the increased wages around us to mean more disposable income, but what if wages rise 10% and prices of durable hobby goods raise 30%? Are we going to see increased spending? I doubt it pretty highly.