This is the usual unintended consequence of panic regulation. Chinese factories produced contaminated toys so Congress has outlawed lead in all things intended for children. Bicycle makers pointing out that kids rarely chew on chains didn't keep them from being banned for having some lead in the alloy. To make sure toys were lead-free all manufacturers have to have them tested by a third party lab and label all batches.
For Mattel, that's an annoying expense, but there's cheap labs in China so they can do production and testing in the same batch of outsourcing. Stay at home moms running a website selling toys they get from Amish carpenters . . . are hosed. There's no way they can afford to do all the testing and remain in business. No exceptions for small companies, or using only pure materials though. Congress won't let our children be endangered. Not even by reading books published before 1986.
So far, typical government idiocy--politicians acting to get a good headline then not caring about the consequences of their decisions. There's a lot of laws that are originally written by lobbyists who hand drafts to Congressional staffers. The boss may or may not do an edit (or a read) before proposing it as a bill. That gets us laws like this benefiting large corporations at the expense of their smaller competitors. Ayn Rand totally misread the nature of captains of industry. Government regulations aren't something for them to rebel against, they're the most effective tool for defeating the competition.
The Reason article brought out another interesting aspect of this law--the impacts cross the lines of our normal left/right tribal divisions. The folks hardest hit tend to be hippie-ish organic food fans selling to the fans of "natural" products. In short, core members of the Democratic party (though their fertility does make them an outlier). They've been getting no support from their party on this. The Congressmen stepping up on the issue tend to be Republicans. Vermont liberals have some cognitive dissonance when they find themselves allied with conservative politicians from Texas. There's a great quote from one defensively protesting that she's "not trying to advance an ideology or nefarious political agenda."
The problem for her is that she is trying to advance one: the idea that individuals should be free to do as they wish if they're not hurting anyone else, at least in the small arena of toy making. It just doesn't fit into the left-right political model she's used to.