Tariffs, Courts, and Chessboards: Navigating Legal Risks and Supply Chain Shifts in U.S. Small Businesses

The Trump-era tariffs imposed under the International Emergency Economic Powers Act (IEEPA) have sparked a legal and economic tempest, with recent court rulings striking down these measures as unconstitutional overreach. For U.S. small businesses—particularly in industries like toys, board games, and consumer goods—this creates both peril and opportunity. The interplay between court victories, supply chain reconfigurations, and litigation-driven refunds is reshaping investment landscapes. Let's dissect the risks and rewards.

The Legal Backlash: A Constitutional Crossroads

Recent rulings in Learning Resources v. U.S. and Stonemaier Games v. Customs have upended the administration's tariff strategy. The U.S. Court of International Trade (CIT) invalidated tariffs on grounds that IEEPA does not authorize broad economic sanctions, while the District Court for D.C. ruled that tariffs violated separation of powers by delegating legislative authority to the executive.

These decisions expose vulnerabilities in the administration's policy. However, appeals are ongoing, with the government arguing that Curtiss-Wright precedent grants broad executive authority in foreign affairs. The outcome could take years, leaving tariffs in limbo—yet creating a window for businesses to pivot strategies.

Supply Chain Shifts: From China to Vietnam—and Litigation

The toy and board game sectors exemplify how businesses are adapting. Companies like Mattel (MAT) and Hasbro (HAS) have slashed reliance on Chinese manufacturing, aiming to reduce exposure to tariffs.

• Mattel cut Chinese production from 50% (2023) to below 40% (2025), with plans to diversify further.
• Hasbro aims to drop Chinese sourcing to 20% within four years, shifting to Vietnam and Mexico.

Smaller firms like Stonemaier Games, a board game publisher, faced 145% tariffs on Chinese imports, forcing them to warehouse goods abroad or absorb costs. Their litigation, alongside Learning Resources, could unlock refunds for businesses that paid tariffs since February 2025—if appellate courts uphold the CIT's ruling.

Market Opportunities: Where to Invest Now

1. Diversified Supply Chains:
   Companies with reduced China exposure or flexible manufacturing networks are insulated from tariff shocks. Hasbro and Mattel are leaders here, but smaller players like Earthborne Games (focusing on eco-friendly materials) also show promise.

2. Litigation Leverage:
   Businesses that filed timely protests with U.S. Customs (within 180 days of liquidation) or joined class-action lawsuits (e.g., Chapter1 LLC v. U.S.) stand to recover tariffs paid. Investors should favor firms with strong legal standing, such as those involved in Learning Resources, which secured a preliminary injunction.

3. Digital and Niche Markets:
   The shift to digital gaming (e.g., Magic: The Gathering Online) and nostalgia-driven collectibles is shielding revenue streams. Mattel's joint venture with NetEase (MAT163) and Hasbro's Wizards of the Coast division exemplify this pivot, with digital revenue now 29% of Hasbro's total.

Risks: Tariffs, Inflation, and Uncertainty

• Prolonged Tariffs: If appeals reverse the CIT's decision, tariffs could remain, raising input costs and squeezing margins. This risks higher consumer prices, fueling inflation.
• Refund Delays: Even if courts rule against tariffs, refunds could take years due to administrative bottlenecks and class-action complexities.

Investment Playbook

• Buy Diversified Supply Chains: Stake in Hasbro (HAS) and Mattel (MAT) for their proactive reconfiguration and digital growth.
• Target Litigation Winners: Look for small-cap firms with strong protest filings or class-action participation. While not publicly traded, Stonemaier's success hints at opportunities in niche sectors.
• Avoid Overexposure to China: Steer clear of companies still reliant on Chinese manufacturing, especially those without legal recourse.

Conclusion: A Chessboard of Strategy

The tariff battle is a high-stakes game of legal and logistical chess. Investors must weigh the volatility of pending appeals against the tangible moves businesses are making to diversify and litigate. Companies that blend supply chain agility with litigation readiness—like Hasbro and Stonemaier—are positioned to capitalize on refunds or outmaneuver tariffs entirely. For now, the best bets are those playing both defense and offense, ensuring they thrive whether tariffs fall or linger.

In a climate where courts and supply chains are the new frontlines, the winners will be those who see the board clearly.