Yes, chainline is a limiting factor, but there's little or no room to reduce it.

The hubs are usually 120mm OLD, and the cranks and chainring have to clear the combined width of the 2" wide tire, chainstays, and chainstay clearance. Then there's the thickness of the crank arms so while it might be possible to shave 10mm or maybe 20mm at the outside, there's no real room to go narrower, unless you want to build a 20" bike around a narrower tire, then modify both the hub and bottom bracket co capitalize on the possible reduction.

This has all been true for eons, and if there were any q-factor issues with kids bikes we'd have heard something by now.