The Complexities of Manufacturing: A Look at Le Puzz and US Tariffs
Le Puzz, a small puzzle company based in Brooklyn, New York, faces challenges due to tariffs imposed on goods manufactured in China. Like many businesses in the toy and game industry, Le Puzz relies on overseas manufacturing. This article explores the complexities of relocating manufacturing to the United States and the broader economic implications of tariffs.
The Impact of Tariffs on Le Puzz
When Le Puzz received a shipment in March, they were hit with a 20% tariff on the manufacturing cost. These tariffs, implemented by the Trump administration, are designed to encourage companies to produce goods in the US. However, relocating manufacturing is not always a simple or feasible solution.
The Challenges of US-Based Manufacturing
While Le Puzz would prefer to manufacture in the US, producing their exact product domestically appears impossible. The reason lies in the intricacies of the puzzle-making process and the global supply chain ecosystem.
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Components and Industries: Puzzle manufacturing involves numerous components like ink, paper, cardboard, machines, glue, and plastic packaging.
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Global Ecosystem: Each component requires its own network of supporting industries, creating a complex global ecosystem.
Moving this entire system to the US is challenging. For example, most US puzzle manufacturers rely on specialized cardboard from Europe. Additionally, almost all the dies (the shapes used to cut the puzzle pieces) come from Europe or China. While these could be made in the US, the question is whether it would be economically viable.
The Learning Curve and Specialization
Established overseas suppliers often possess specialized knowledge and experience. Setting up production in the US, especially for specialized goods with relatively low volume, can be less cost-competitive. Furthermore, the initial quality of US-made goods may not match that of experienced overseas suppliers due to the learning curve. The time it takes to build one B-17 plane during World War II illustrates this point, with labor hours significantly decreasing over time as efficiency and skill improved. Because Chinese manufacturers have been making these goods in high volumes for many years, they have a level of specialization that can't be easily replicated.
The Unique Features of Le Puzz Puzzles
Le Puzz puzzles aren't standard. They have unique features that add to the difficulty of moving production to the US.
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Hand-drawn, custom-cut pieces
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Resealable bag
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Double-sided poster
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Unusually thick pieces
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Colorful backs
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Box printed on the inside
Le Puzz has not been able to find a US manufacturer willing to accommodate all of these custom features.
The Financial Risks and Uncertainties
Investing in new dies from Europe to move manufacturing to the US would cost Le Puzz upwards of $35,000. This represents a significant risk, especially given the uncertainty surrounding the longevity of the tariffs. As Alistair from Le Puzz stated, "I almost feel like we didn't even have an option." For now, they have to stick with their current manufacturer.
The Broader Economic Impact
The costs associated with tariffs, which could range from 14.5% to 30%, are unclear. Le Puzz may be forced to raise prices, impacting not only their business but also the many small businesses they work with, including stylists, designers, web designers, warehouse employees, and retail stores.
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Retail Sector Impact: The US has a relatively small number of people working in doll, toy, and game manufacturing compared to specialized retailers. There are approximately 5,600 employees in the former, and 128,000 in the latter.
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Job Losses: Making products more expensive is likely to decrease consumer demand. This will, in turn, cost more jobs in the retail and wholesale sectors than would be gained in manufacturing.
The decision of where to manufacture is a complex economic puzzle, with tariffs representing an ever-changing variable.
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