August 14, 2007

Chinese Toy Boycott

Imports of Chinese goods are expected to be up by $3.5 billion and total $63.5 billion for the second quarter. That puts 2007 on pace for another record size US trade deficit with China.

Stymied by an inability to control China trade relations Washington is resorting to a more blunt method – de facto boycotts.

The U.S. Consumer Products Safety Commission (CPSC) announced today that it had coerced Mattel, Inc., to recall millions of Chinese made toys including famous American brand Barbie. The recall is “intentionally large” CPSC Chairman Nancy Nord said while admitting that no one has been injured or harmed by any of the toys recalled.

The action of the CPSC plays on the fears of mothers everywhere and whether intentional or not fuels press coverage intent on demonizing China for all of the world’s ills.

The CPSC action is direct “Nanny State” intervention into markets and the economy.

Mattel's factories and workers may be in China but they were built and are paid by US dollars - direct foreign investment from Mattel and other companies. By building factories and relocating jobs to China corporations such as Mattel get increased profit margins and by contracting out production and other services they get to skirt regulations in the USA.

But the de facto boycott of Chinese toys leaves Mattel with little recourse to stem its losses and impact on its stock price, already falling today. Mattel is essentially a pawn in a spat between Washington and Beijing. It’s akin to a nasty separation where one spouse punishes the children to get back at the other. Is this a sign of more ugliness to come? We’ll see when the Chinese autos come ashore in big numbers.

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