Re-Shoring in the U.S. Toy Industry: A Play for Supply Chain Resilience and Automation Opportunities

The U.S. toy industry is at a crossroads. Post-2020 tariffs, peaking at 145% on Chinese imports, have exposed vulnerabilities in a sector reliant on low-cost Asian manufacturing. Yet, this crisis has also catalyzed a strategic pivot toward re-shoring and automation, offering investors a chance to capitalize on firms building domestic resilience and nearshoring partnerships. Companies like Learning Resources—currently battling tariffs in court—signal a broader transformation, as firms shift production to Vietnam, India, and beyond while investing in robotics to mitigate labor and logistics risks. This article explores the path forward and identifies where capital can find value.

The Tariff Trap and Its Consequences

The U.S. imports 80% of its toys from China, but punitive tariffs have forced a reckoning. Learning Resources, a mid-sized manufacturer, exemplifies the fallout: its lawsuit against tariffs aims to block a cost surge from $2 million to $100 million annually. Such pressures have driven firms like Huntar Company to Vietnam and Learning Resources to India, where labor costs are lower than China but still far above U.S. wages. Yet these shifts are fraught. India's textile sector, for instance, faces labor shortages and potential U.S. tariffs on textiles starting in July 2025, while Vietnam struggles to match China's scale.

The result? A fragmented supply chain demanding new strategies.

Re-Shoring: Not Just a Retreat, But a Rebuild

Re-shoring is no panacea. The Toy Association estimates it would take 5–7 years and billions to replicate China's infrastructure in the U.S., with costs prohibitive for small firms. However, automation offers a path forward. Consider The Rodon Group, which produces K'Nex toys in Pennsylvania using injection molding and robotics. While niche today, such models could scale if firms invest in specialized machinery.

The data underscores urgency:

Automation stocks have outperformed the broader market, reflecting investor optimism about manufacturing transformation.

Nearshoring: A Middle Ground for Resilience

For firms unable to re-shore fully, nearshoring to Mexico or Central America offers a compromise. These regions have lower labor costs than the U.S. but shorter lead times than Asia. Hasbro, for instance, is exploring Mexico for certain products, while Mattel has diversified production to Vietnam and Indonesia.

Investors should watch:

A sustained rise in Vietnam's share could signal a strategic shift with long-term implications.

The Investment Thesis: Where to Bet

The re-shoring and automation push creates two investment vectors:

1. Automation Enablers: Firms supplying robotics, AI, and logistics tech to toy manufacturers. Companies like Teradyne (TER) (robotics) or Covariant (AI for manufacturing) could benefit as toy producers automate assembly lines to offset labor costs.

2. Resilient Manufacturers: Companies with clear re-shoring/nearshoring strategies and strong brand equity. Hasbro (HAS), for example, is investing in cost-saving measures while expanding U.S. production of board games—a segment less labor-intensive than plush toys. Its stock price, currently at a 52-week low, may rebound if tariffs ease or automation gains traction.

Avoid small-cap toy firms without scale; 45% of U.S. toy companies risk closure due to tariffs, per industry surveys.

Risks and Considerations

• Tariff Volatility: The U.S.-China trade war remains unpredictable. Investors should monitor for shifts.
• Labor Shortages: The U.S. lacks a manufacturing workforce trained for toys. Firms like L Brands (LB), which invest in retraining programs, may gain an edge.
• Consumer Sentiment: Higher toy prices (UBS forecasts a 20–30% surge by 2026) could crimp demand. Brands with “essential” appeal, like Mattel's Barbie (MAT), might weather this better than niche competitors.

Conclusion: Build for the Future, but Mind the Hurdles

The U.S. toy industry's transformation is a tale of necessity driving innovation. While re-shoring and automation are fraught with cost and complexity, they offer a path to supply chain resilience. Investors should prioritize firms with scalable automation plans or nearshoring partnerships, while avoiding those overly exposed to tariff volatility.

The toys of tomorrow will be made by machines in domestic factories—or at least closer to home—and the companies leading this shift will be the sector's winners.

Investment advice: Overweight Hasbro (HAS) for its diversified strategy, and consider robotics ETFs like ROBO as a thematic play. Avoid pure-play China-sourced manufacturers until tariffs stabilize.