The Negative Effects of Tariffs on Creative Industries

Article

Article
Posted by:
Andrew Birkett
Date Published:
May 19, 2019

The Negative Effects of Tariffs on Creative Industries

Most people now know that the US government has proposed up to 25% tariffs on a multitude of products manufactured in China. Unfortunately, included in that are several products that we work on including board games, toys, dice and comics. A lot of consumers have misconceptions on how tariffs work and what they could mean for these industries. As an American publisher we wanted to share some information on tariffs including: why tariffs are bad for publishers, why this won’t create US manufacturing jobs, and most importantly why the government would impose tariffs.

  1. Tariffs are bad for publishers
  2. Tariffs won’t create US manufacturing jobs in small industries like comics/games
  3. The government’s reason for imposing tariffs

Tariffs are bad for publishers

The cost of tariffs are not imposed upon Chinese manufacturing plants. They’re imposed as a penalty upon companies that manufacture in China and sell their products within the United States of America. This limits free trade.

It’s a huge cost increase for small publishers, most of which don’t produce substantial profits as is. These are small industries that have tight margins. US based businesses like ours will therefore have to lower our profit margins or pass on these added costs to consumers.

For the board game industry specifically a publisher has to charge consumers 5x the cost of good sold (the total cost per unit with manufacturing, shipping, and other direct expenses). The reason for this markup is because publishers typically must sell in the retail channel which means they must sell to a consolidator, who then sells to distributors, who sell to retailers, who then in turn sell to consumers. A publisher can usually expect 30-40% of the MSRP (manufacturer’s suggested retail price) from their retail sales. If a game sells for $10 retail that means the publisher will make $3 in revenue. Then the publisher must pay for manufacturing, shipping, pay the designer’s royalty, they must pay for artwork, marketing, and now potentially the tariffs as well.

Tariffs won’t create US manufacturing jobs in small industries like comics/games

The cost of making products in the United States for comic books and board games is significantly higher than manufacturing it in China. There are substantial employment expenses for manufacturing plants. The cost of labor is much higher in the United States with US employment law, which makes unskilled/low-skilled labor difficult in the US. Additionally, commercial printing presses cost millions of dollars. The buildout of creating new manufacturing plants is quite costly and therefore is unlikely.

There are currently a few US based board game manufacturers. Though, most outsource production to China anyways. The few that don’t are 2 to 3x as expensive as their Chinese counter parts and produce lower quality products as well. Small publishers cannot afford to manufacture in the US. Tariffs won’t create more US manufacturing jobs – the US has moved into a service economy anyways.

The government’s reason for imposing tariffs

The government imposes tariffs in order to create more revenue and attempt to regulate trade so that companies will manufacture in countries other than the one they are sanctioning. Tariffs are generally bad for businesses who are currently manufacturing products in the country being sanctioned. It is also bad for consumers who will see price increases. Though, it can sometimes increase the competitiveness of US manufacturing companies, though, again, that doesn’t seem to be the case for our small industries.

The primary reason for the tariffs imposed on China are political in nature. the US government is trying to rectify what it sees as an unfair trade practices by China.

Conclusion

Tariffs can be bad for publishers and consumers. If the tariffs go through they likely won’t create any new manufacturing jobs. In fact, they may create an additional struggle for US based publishers in small industries that already have tight margins. The reasons for imposing tariffs are usually political. They create more revenue for the government and limit free trade.

The Negative Effects of Tariffs on Creative Industries

Article

The Negative Effects of Tariffs on Creative Industries

Most people now know that the US government has proposed up to 25% tariffs on a multitude of products manufactured in China. Unfortunately, included in that are several products that we work on including board games, toys, dice and comics. A lot of consumers have misconceptions on how tariffs work and what they could mean for these industries. As an American publisher we wanted to share some information on tariffs including: why tariffs are bad for publishers, why this won’t create US manufacturing jobs, and most importantly why the government would impose tariffs.

  1. Tariffs are bad for publishers
  2. Tariffs won’t create US manufacturing jobs in small industries like comics/games
  3. The government’s reason for imposing tariffs

Tariffs are bad for publishers

The cost of tariffs are not imposed upon Chinese manufacturing plants. They’re imposed as a penalty upon companies that manufacture in China and sell their products within the United States of America. This limits free trade.

It’s a huge cost increase for small publishers, most of which don’t produce substantial profits as is. These are small industries that have tight margins. US based businesses like ours will therefore have to lower our profit margins or pass on these added costs to consumers.

For the board game industry specifically a publisher has to charge consumers 5x the cost of good sold (the total cost per unit with manufacturing, shipping, and other direct expenses). The reason for this markup is because publishers typically must sell in the retail channel which means they must sell to a consolidator, who then sells to distributors, who sell to retailers, who then in turn sell to consumers. A publisher can usually expect 30-40% of the MSRP (manufacturer’s suggested retail price) from their retail sales. If a game sells for $10 retail that means the publisher will make $3 in revenue. Then the publisher must pay for manufacturing, shipping, pay the designer’s royalty, they must pay for artwork, marketing, and now potentially the tariffs as well.

Tariffs won’t create US manufacturing jobs in small industries like comics/games

The cost of making products in the United States for comic books and board games is significantly higher than manufacturing it in China. There are substantial employment expenses for manufacturing plants. The cost of labor is much higher in the United States with US employment law, which makes unskilled/low-skilled labor difficult in the US. Additionally, commercial printing presses cost millions of dollars. The buildout of creating new manufacturing plants is quite costly and therefore is unlikely.

There are currently a few US based board game manufacturers. Though, most outsource production to China anyways. The few that don’t are 2 to 3x as expensive as their Chinese counter parts and produce lower quality products as well. Small publishers cannot afford to manufacture in the US. Tariffs won’t create more US manufacturing jobs – the US has moved into a service economy anyways.

The government’s reason for imposing tariffs

The government imposes tariffs in order to create more revenue and attempt to regulate trade so that companies will manufacture in countries other than the one they are sanctioning. Tariffs are generally bad for businesses who are currently manufacturing products in the country being sanctioned. It is also bad for consumers who will see price increases. Though, it can sometimes increase the competitiveness of US manufacturing companies, though, again, that doesn’t seem to be the case for our small industries.

The primary reason for the tariffs imposed on China are political in nature. the US government is trying to rectify what it sees as an unfair trade practices by China.

Conclusion

Tariffs can be bad for publishers and consumers. If the tariffs go through they likely won’t create any new manufacturing jobs. In fact, they may create an additional struggle for US based publishers in small industries that already have tight margins. The reasons for imposing tariffs are usually political. They create more revenue for the government and limit free trade.