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How Trade Spreads Holiday Cheer

December 14, 2018 by Laura Collins
It is projected that the average American household will spend more than $1,000 during the holidays this year.

The holidays are upon us, when families gather to exchange presents and watch little ones joyfully tear wrapping paper to get to the gift inside. Whether you prefer to give Barbies®, LEGOs®, smart phones, or automobiles, American gift givers have a dizzying array of choices at every price point.

It is projected the average American household will spend more than $1,000 during the holidays this year. So, it is only fitting to discuss what truly makes the holidays so special: global trade.

Most presents under the tree are manufactured in part outside of the United States—including presents labeled as being made in the U.S.

Even Santa Claus benefits from global trade. Despite having the world’s most skilled toy manufacturers, elves, Santa surely imports raw materials. After all, the North Pole is not rich in natural resources and toy components do not appear by magic.

Free trade agreements like the North American Free Trade Agreement (NAFTA), or its potential replacement the United States-Mexico Canada-Agreement (USMCA), make manufacturing more cost-effective by lowering or eliminating tariffs. According to our North America Competitiveness Scorecard, North America continues to be the world’s most competitive economic region. This is due to NAFTA’s regional supply chains and manufacturing platforms.

Here is a snapshot of Christmas gifts, both classic and modern, under your tree with the help of global trade.

Dolls

Whether you prefer Mattel’s Barbie, Hasbro’s Baby Alive, L.O.L. Surprise, or the now ubiquitous American Girl and her 18 inch counterparts, dolls are a staple of Santa’s toy bag. Barbie and Baby Alive start around $10 for basic models without accessories. By contrast, the typical American Girl doll is $115. Her discount store counterparts are a more modest $20 to $30 each. The hottest toy of the last two years, the L.O.L. Surprise, ranged from $10 to $100 depending on size.

What do they have in common? Each of these companies manufacture their products overseas.

LEGO

LEGO, the much-beloved and iconic brand of plastic building bricks, is a family-owned Danish company that manufactures its products globally— China, Hungary, the Czech Republic, and NAFTA-member Mexico.

Its manufacturing plants are strategically located around the world to help meet the demand at a cost that is accessible for consumers.  LEGO building sets have a wide price range and cover many age groups. A classic box of bricks can be bought for less than $5, while the elaborate building sets can cost hundreds of dollars.

Smart phones

Chances are high that processors and other component parts in Samsung, Apple, or other smartphone brands come from many countries and are assembled in Asia.

In 2015, Korea-based Samsung had manufacturing plants in six countries—Vietnam, Korea, China, India, Brazil, and Indonesia. Apple uses suppliers from around the globe, with a heavy emphasis on China, to create components for its products, including the iPhone.

Interactive Toys

Interactive toys have been popular since the late 1990s—Tamagotchi and Furby. This year’s hot interactive toy is the Pomsie, an interactive stuffed animal made by Skyrocket. Averaging an affordable $15, Pomsies are manufactured in China. 

Automobiles

If the commercials touting cars with giant red bows on them are any indication, automobiles make great Christmas gifts. For American gift-givers, this is the gift category most profoundly impacted by global trade, particularly NAFTA.

For both U.S. and foreign car companies, the American automobile market is dependent on a North American supply chain to stay competitive. NAFTA reduced or eliminated tariffs across the continent and automobile sector, allowing vehicles to be manufactured at the most cost-effective locations, lowering consumer prices and keeping the U.S. auto industry competitive in the global economy.

Foreign brands such as Volkswagen, Toyota, Audi, and Honda make the vehicles they sell to Americans in North America. American consumers benefit from the variety increase, jobs, and cost reductions that NAFTA provides in this sector. However, the cost of giving a new car could increase in the coming years if USMCA is adopted.

The agreement changed the auto rules of origin, requiring more content to be made in North America and imposing a minimum wage. These changes likely will force manufacturers to adjust supply chains that developed over the past two decades to enable the industry to control costs.

Tariffs also impact the price consumers pay for these trendy toys and cars, especially those imposed on China. The trade tension increase between the U.S. and China led many retailers to ship their holiday merchandise before any tariffs took effect, minimizing any price increases this year. However, continued trade tension with China could lead to less holiday cheer for you and your money next year.

So, as you sip egg nog and open gifts on Christmas Day, remember the vital role global trade plays in filling Santa’s toy bag and spreading holiday cheer.


Author

Laura Collins
Laura Collins

Laura Collins serves as Director, Bush Institute-SMU Economic Growth Initiative at the George W. Bush Institute. Collins previously served as the Director of Immigration Policy at the American Action Forum. She has experience in politics, working as a Senior Research Analyst at the Republican National Committee for the 2012 election cycle and in the Texas House of Representatives for the 82nd Legislature. A former practicing attorney, Collins earned a JD from The University of Texas School of Law and a BBA from the University of Oklahoma.

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