Portal Games Response to Tariffs

 

The email below discusses some of the actions Portal Games plans to take in response to American tariffs and notably, advises American customers who want to back their upcoming release Race for Berlin to put in a $1 placeholder pledge until the company determines if the administration will change its mind about how much tariffs should be:

Bohemians was sent to print this week. I lowered the print run to 60% of planned print run so we don’t risk bankruptcy with tariffs when games reach US customs,

Age of Galaxy is ready in China. I asked the manufacturer to not ship it to the US yet. We are risking missing Gen con release, but this additional 145% cost added to the whole sprint run is devastating. I have two, maybe three weeks window and then I miss Gen con with the game,

Race to Berlin on GameFound started this week. We have 200 backers as for now. For the US players we decided to not collect regular pledge due to uncertainty with final tariffs and asked them to put $1 Pledge in and see how the things develop later. We don’t want to leave them behind, but at the same time I am responsible and respectful - I am not going to charge you $40 for a game that may cost you $200 later with crazy tariffs added.

De Minimus Exemption

 

Since the “de minimus” exemption expired on May 2, a look at their websites show online fast fashion retailers Temu and Shein are approaching the addition duties different. Temu has apparently moved a lot of product to stateside warehouses and shows these “local” items, that avoid the tariff, first when a customer searches on the side. Shein, meanwhile, apparently has little to no US presence and has chosen to include the tariffs in its displayed costs, not breaking them out for consumers as Amazon had considered doing.

Tariffs

 Starting to see some effects from tariffs, especially in supplies. Arriving restocks of Ultra Pro Standard 2.5” x3.5” Soft Sleeves, commonly referred to as “penny sleeves”, will now cost $1.22 per pack, quite a jump from the previous price of 54 to 57 cents a pack, a price increase of about 125%, certainly rendering the penny sleeve designation as moot.  Now the question is:  raise the price on supplies to a figure whereby the store makes its standard margin, or add the tariff amount to the current retail price and treat it as a tax?

Tariffs Having More Impact

 

Although claims have been made that container ships have stopped unloading at ports on the West Coast, including one widely shared photo stating ships have stopped unloading at the Port of Seattle, such claims are, shall we say, overblown to say the least. For the first quarter, the number of ships unloading at the Port are actually slightly up in numbers from 2024 for the first quarter, although in some cases, the amount of freight unloaded can run up to 30% less than expected. Of course, given the two to four weeks it takes for a freighter to cross the Pacific from China, those ships arriving now may have left pre-tariff and we may see a significant drop in shipments arriving if more companies take their cue from The Op and Cephalofair Games and send shipments back to their point of origin (See “The OP May Send Fifteen Containers of Games Back to China”). If tariffs do not get reverted soon, the holiday season, which accounts for some 40% of retail sales and accounts for the majority of profits for the toy and game industry will see a significant drop in sales and lots of empty spaces on the shelf.

Economics Lesson from Ferris Bueller

 I never thought I would see the day when people started looking to Ferris Bueller for lessons on economics but these are the times that we are in. People are using this as a quick explanation of what tariffs are and how the Smoot-Hawley Tariff Act helped deepen the Great Depression. We have historical record of what overtly high tariffs did last time and yet the administration has decided, as of this writing, to keep going ahead with them. I want to emphasize “as of this writing” because no-one is quite sure where the administration plans to go with tariffs in the immediate future. Case in point, Portal Games. This email discusses some of the actions the company plans to take in response to American tariffs and notably, advises American customers who want to back their upcoming release Race for Berlin to put in a $1 placeholder pledge until the company determines if the administration will change its mind about how much tariffs should be:

Tariffs and dice

 Spoke with the owner of a small dice company last night who stopped by the store on his way north.  He says that, unless the tariffs are drastically reduced, he will likely have to shut down his company by the end of 2026. There is just no way for him to stay in business in the face of 145% tariffs.

Interview with the Owners of Runaway Parade Games

 Interview with the owners of Runnaway Parade Games on the effect Trump's tariffs are/will have on their boardgame company. It's not positive.

Tariffs Effect on Boardgame Companies

 

If the tariffs continue, things will get bad for the hobby game industry. A tariff of 10% could be absorbed, even a 20% one with some stress. A 35% tariff inflicts serious damage on the industry but a 146% one is devastating. In this interview, Price Johnson of Cephalofair Games says his company may have to quit distributing its games in the US due to the tariffs. One shipment costs $840,000 to manufacture and Cephalofair has to pay another estimated $873,000 in taxes to bring it into the country, effectively doubling the cost, with no additional benefit to the company.

Tariff Impact on Jobs and families

 

Given the recent announcement of two  10% tariffs on imports to the US from China, the game industry is looking at 20% minimum price increases on the items we import from China, which is a whole lot of products. The idea, as the administration has said multiple times, is that foreign governments pay the tariff, billions of dollars flow into the US treasury and, to avoid tariffs, companies flock to move their operations to the United States. None of which is going to happen. Remember the tariffs put into place during the first Trump administration? They resulted in fewer jobs in the US, reduced GDP by a full 1%, cost taxpayers about $900,000 per job saved, cost the average household just over $1200 per year,  cost the American workforce about 245,000 jobs, and did nothing to reduce the national debt.

Tariff Impacts

 Tariff Impact:  It isn’t Pretty

Given the recent announcement of two  10% tariffs on imports to the US from China, the game industry is looking at 20% minimum price increases on the items we import from China, which is a whole lot of products. The idea, as the administration has said multiple times, is that foreign governments pay the tariff, billions of dollars flow into the US treasury and, to avoid tariffs, companies flock to move their operations to the United States. None of which is going to happen. Remember the tariffs put into place during the first Trump administration? They resulted in fewer jobs in the US, reduced GDP by a full 1%, cost taxpayers about $900,000 per job saved, cost the average household just over $1200 per year,  cost the American workforce about 245,000 jobs, and did nothing to reduce the national debt.

Here is what the game industry can expect to see in terms of price changes this year as a result of the tariffs.  Publisher manufactures a game in China.  Why? Because it takes 2-4 years to create a new supply chain. Companies cannot shift their channels of distribution within a month or so. Ergo, publisher bringing the product into the US has to pay a tax of 20% on the imported product. A game that cost $10 to manufacture and ship will now cost $12, with $2 of that going to the US government. Distributor margins are about 10-15%, at least they were when I worked in distribution decades ago. If anyone in distribution wants to share more recent margins my email is at the end.  Distributors will have to sell the game to retailers for about $18. If retailers want to keystone the game’s price to make a 50% margin, the price goes to about $36 when sold to the consumer, about $6 more than the game would sell for without any tariffs. 

Another problem is the general uncertainty regarding the imposition of the tariffs. The Trump administration has said it will impose tariffs on Canada, the European Union and Mexico than changed its mind almost the next day, pushing back the start day. Although we probably won’t see any roll back, absent negotiations, of tariffs on Chinese imports, it could happen What do manufacturers do, absorb the cost of the tariff in the hope/expectation that the Trump administration will roll them back or figuring them into the cost of good sold as a fact of doing business, keeping higher prices which could reduce the number of price sensitive customers buying? If the tariffs get negotiated away and manufacturers increased prices, do they roll back the price and leave other members of the channel holding products with tariff inflated prices?

From what I have read, expecting increased tariffs after Trump won the presidency, a significant number of manufacturers chose to ramp up production runs during the last quarter, opting to warehouse product brought into the US under the previous tariff structure and have enough inventory on hand to avoid tariff fueled price increases through the end of Q2 or beginning of Q3, with the hope that the Chinese tariffs get negotiated away and the 25% tariffs on steel and aluminum imports never get imposed but it does not look promising.

Tariffs Postponed

It appears we walked it up to the brink and then pulled back. Why does the pullback of the tariffs matter to you? Because this latest round of tariffs included a 15% increase in boardgames and board and card game supplies imported from China, starting next week. Now that has been pushed back.

Talking Tariffs 2 From the Retail Perspective

NPR’s The Indicator podcast is a short (9-10 minutes) look at one aspect or another of the economy, business, work, etc. Recent episodes have looked at such things as the similarities between Thanos and 19^th century economist Thomas Malthus in their approach to allocation of resources. A recent episode drew my interest because it looked at the effect the recent tariffs had on one game store. As I noted in a previous column, the tariffs imposed by the administration have not  yet directly affected game stores or the game industry here in the US. The effect of said tariffs on stores in other countries though is an entirely different matter  and the May 23^rd episode of the podcast looked at just that.

Wizard’s Tower is one of the top stores in Canada dealing in Magic, with, according to the podcast, over 90% of its sales coming from Magic and Magic related products. You may remember that last year the United States, claiming national security, imposed tariffs of 10% on aluminum and 25 % on steel imported from Canada, Mexico and the European Union. What didn’t get near as much attention here is the US was the retaliatory tariffs our trading partners imposed on products imported from the US, specifically, for the purposes of the podcast and this column, a general 10% tariff placed by Canada last July, on all products imported from the US. Wizards prints Magic here in the US and Wizard’s Tower imports it from here to its store in Ottawa, meaning that not only are the cost of its purchases subject to the fluctuations of the Canadian dollar against the American one. but now, thanks to the 10% tariff that Canada placed on many imports from the United States, which included playing cards, the cost Wizard’s Tower pays for a box of Magic increased by 10%, with no compensatory increase in MSRP (Remember, WOTC  had not eliminated MSRP yet, so the list price for a pack of Magic is still $3.99). This means Wizard’s Tower is paying 10% more for its products than before. Due to the exchange rate, to maintain a profitable gross margin, Wizard’s Tower prior to the tariffs sold a pack of Magic for about $4.50. As a result of the tariff, the store raised the price of a pack of Magic to $5.

 In addition, to try to maintain the average markup storewide, the store raised the price of a number of events, primarily Friday Night Magic. However, price elasticity kicked in and many of the store’s players deserted its events for cheaper ones at other stores. In order to regain them , Wizard’s Tower found it necessary to lower the event prices back to where they were before, meaning lower profits and less capital to invest in various aspects of store operation, including a much desired website redesign. The store cut costs and reduced inventory until finally on May 17^th, the US announced it was lifting the tariffs on steel and aluminum, causing Canada to end the tariffs it had imposed on American products, including cards, reducing Wizard’s Tower’ cost on Magic back to where it was last summer.

Of course , the store is not home free yet. In order to stay in business, it did have to purchase Magic at the tariff increased price and, although costs of new product have dropped, it still has inventory of the higher priced product which it must either try to sell at the higher price or accept a reduced margin in order to move it out of inventory

This is a cautionary tale for US game stores  and publishers. Although the top trading card games are printed in the US, allowing them to avoid tariffs, as are D&D books (Pathfinder is currently printed in China), things such as dice, plastic sleeves and boardgames often get manufactured in China, opeing the US industry to the same tariff effects Wizard’s Tower saw.

Talking Tariffs

The game industry has been able to ignore the effects of the trade war between the US and China for the past year, primarily because the tariffs focused on raw materials and processed goods, not products sold to the end user (although the average price of a washing machine rose about $89 last year due to the tariffs. Even though there was no tariff on them , manufacturers increased prices on dryers a comparable amount, primarily because consumers generally purchased them as a pair and did not  notice the price increase)..The latest announcement from the administration of more tariffs on Chinese imports targeting some $300 billion in goods, most of which are consumer goods means there will be a significant impact on the gaming industry as the goods targeted include HTS 9504.90.6000, chess, checkers and other games played on boards.

 If you want to read through the whole proposal, here it is, but in short, due to cost savings, a lot of manufacturers in our industry produce their products in China, making them subject to the tariff increases.  Gary Ray, owner of Black Diamond Games, published a blog post back in 2017 looking at his store’s top sellers and where they are produced. Not surprisingly, roughly 80% of them come from China, meaning that, barring some settlement, those companies will be hit with a 20-25% price increase should the tariffs come into effect.

Looking back at tariffs in US history, their use has been tied into the country’s government and economic policy since its founding and before. Britain viewed the American colonies as a source of raw materials for its industries at home and frowned upon when the colonists worked to develop their own industry.  One of the major complaints by residents of the colonies was the refusal of the British government to allow them to enact tariffs to protect the nascent American industries from outside sources that could undercut them, destroying the developing enterprises  before they could grow strong enough to stand on their own.

Not surprisingly, almost immediately after securing independence , the new States passed laws  putting tariffs into place, using them as the primary funding source for the federal government (The previous Articles of Confederation had required the government to fund itself by asking the individual states for money. That worked really well). Although Britain was the first country to utilize tariffs as a means of protecting its industries, the United States, after its founding, embraced the idea of protectionism far more ardently, with tariffs of up to 40% providing up to 95% of funding for the federal government and making protectionism the country’s  economic policy from roughly 1800 until just after World War 2, when the US took a much stronger position on the international stage , liberalizing its trade policy and reducing its reliance on tariffs, reducing them to a historic low for the US wherein only 30% of imported goods were subject to tariffs and likely cumulating in the North America Free Trade Act, which effectively eliminated tariffs on good passing between the US, Canada and Mexico.

So it is not as if the US  is unfamiliar with tariffs (your sneakers currently are subject to a 48% tariff and shelled peanuts to a 132% one) insomuch as one is getting slapped on our industry, without giving the companies involved much time to make changes in their supply chains by either moving production back to the US or finding low cost sources overseas.  If you want voice your opposition to them, The Toy Association has an online petition you can fill out and submit.

Effect of Tariffs on Canadian Magic 2

To follow up on yesterday's post (you can read it here), the 10% tariff imposed by Canada on playing cards meant that Wizard's Tower cost for a pack of Magic increased by 10% cutting into already thin profit margins. Remember Canadian stores have to import most of their Magic from the US and often the exchange rate between the Canadian and US dollar is not that favorable. This means that , in order to stay in business (remember that Wizards Tower does 90% of its business in Magic), the store had to raise the price of a pack of Magic from $3.99 to $4.99. Needless to say, the store's customers did not like this.

So, in order to cushion the price increase, Wizard's Tower tried to spread the price increase around by increasing the price of tournaments. Charging an extra dollar for tournaments means the store could afford to absorb some of the increase in costs from the tariff. However, players started deserting the tournaments for stores that offered cheaper entry fees. Apparently the store also had a lackluster response to Ravnica Alligences or War of the Spark, the podcast does not indicate which, meaning the store did not see its typical inventory turnover, leaving unsold inventory in stock.

The store managed to hold on and Canada removed the tariff earlier this month, meaning WT could again buy Magic at its old price. Unfortunately, that also means the store still has a significant amount of Magic it had purchased during the time of the tariff that it will have to sell at the regular, not tariff price, or alienate its customers, cutting into store margins probably for the rest of the summer.

Effect of Tariffs on Canadian Magic

This podcast from Planet Money looks at the effect of the reciprocal Canadian tariffs on one Canadian game store. After the administration imposed 25% tariffs on Canadian steel, the Canadian government responded by imposing a 10% tariff on a wide variety of American imports including, playing cards. Since Magic falls into that category, the Wizard's Tower game store, which imports all of its Magic from the US, saw its prices rise automatically by 10%, reducing an already pretty small profit. Since the store sees 90% of its sales come from Magic, dropping the line was not an option. Listen to the podcast to see what happened or come back here tomorrow.

More on Tariffs

If the proposed tariffs go through, they do include HTS code 950490600 which includes chess, checkers and other boardgames  Here are some more details on it but if you don't feel like slogging through the verbiage, unless there is a negotiated end to the trade war with China, boardgames and supplies would see a  25% tax increase on their prices later this year. It would not go into effect this summer, so games already in production would not be effected, but we could see price increases across the board by Christmas. Gary Ray, owner of Black Diamond Games, looked at his top sellers and where they are manufactured. Due to cost savings, the overwhelming number are produced in China and, unfortunately, due to supply chain constraints, companies cannot shift manufacturers quickly. they are looking at 6 months to a year before a new publisher could be found.

What could happen:
1. to product consumers, manufacturers absorb the tax increase and hold prices steady instead of passing it along to the consumer.
2. manufacturers pass the price increase immediately along to the consumer

Either option is not desirable. Previous tariffs from the Trump administration have targeted raw materials, not products used by the consumer. this latest batch will hit the consumer directly in the pocketbook.

Tariffs and you

If the next batch of tariffs gets approved, expect to see a significant increase of approximately 10-25% on a lot of gaming products. Most game companies print the majority of their products in China and game boards, printing ink and sleeve plastic would be included. Among others, Ultra Pro, Wiz Kids, CMON, Cards Against Humanity, Steve Jackson Games all print their products in China because of the significant cost savings. Pokemon, Wizards of the Coast, Reaper and Looney Labs print their games primarily in the US and Chessex produces its dice in Germany so they will be exempt. If the third batch of tariffs does get put into place, and there is a period for comments to go to the government before the tariffs are imposed.