Written by: Hannah Edens

President-elect Trump has announced that, in addition to the increase in tariffs he will enforce on imports from China, he also plans to place tariffs on goods coming from Mexico and Canada. This does a few things. First, it effectively denounces the United States-Mexico-Canada agreement, a key agreement to trade and investment among the three countries. Second, it creates a potentially larger impact on the United States economy than the tariffs enacted on imports from China. Imports from Canada and Mexico are the United States’ first and third largest sources of imports respectively, worth over $900 billion in 2023 and responsible for over 17 million jobs in North America. Additionally, approximately half of U.S. trade with Canada and Mexico is directly related to supply chains in sectors such as automobiles, medical equipment, energy, agricultural products, and more.

CPG brands will not be excluded in this and the effects felt by the potential tariffs on Canada and Mexico will potentially be larger than on imports from China. Canada is a leading world producer of wood pulp, a key ingredient for paper and cardboard packaging; metals such as aluminum and steel; and plastics, especially recycled plastics. Mexico is also a large producer of plastics, including PE, PP, and PET; glass, particularly for food & beverage applications; and adhesives and inks used for printing. The proposed tariffs on Canada and Mexico will have strong consequences for CPG brands that rely on U.S. sourcing and production of their primary and secondary packaging.

To illustrate this further, let’s say a CPG brand manufactures their D2C corrugate shippers in the United States currently. This manufacturer sources their paperboard from Canada and ink domestically. Assuming that the paperboard cost makes up about 60% of the total cost to the manufacturer, a 25% tariff on the paperboard from Canada translates to a 15-20% increase on the price from the manufacturer to the CPG brand. This is not insignificant to the brand and can result in spending thousands of dollars additional on corrugate shippers to deliver their products to customers.

The proposed 25% tariff on Canada and Mexico imports into the United States will also come with other consequences.

• Political Strain: This tariff undermines the spirit of the USMCA, which will likely lead to further strained relations between the U.S. and our closest trading partners, Mexico and Canada. Additionally, Canada and Mexico could retaliate with tariffs of their own on U.S. imports, which further escalates the trade dispute.

  
  

• Supply Chain Disruptions: CPG brands that rely on North American supply chains will likely face delays, disrupted production schedules, and challenges related to production inputs, inventory, and more. For those who choose to take this as an opportunity to off-shore production, the set-up and onboarding time it takes to start a new supplier relationship overseas could lead to short-term delays.

  
  

• Employment Impacts: Tariffs may lead to layoffs for workers in sectors that are dependent on Canadian and Mexican imports.

  
  

• Innovation and Collaboration Slowdown or Loss: Existing cross-border collaboration could decline, resulting in slower technological advancement. Also, start-ups and smaller businesses may struggle to scale operations due to the uncertainty with the trade environment, increase in their bottom line, and lack of resources.

  
  

Multiple factors will play into a brand’s choice in supply chain location but if you’re committed to maintaining North American production, there a few things that can be done to help lessen the blow of the Canada & Mexico tariff. This includes preparing for volatility by strengthening your current partnerships with suppliers you rely on that may use Canadian or Mexican imports in your finished good, advocate for change by working with trade associations and similar groups to influence policy, and invest in other cost-effective or sustainable solutions to help offset the increase in cost caused by the tariff. But if you’re opening to exploring offshoring, this next part is for you.

So, how do the tariffs on Canadian and Mexican imports interact or impact the proposed increases in tariffs on Chinese imports? And how does this play into a CPG brand’s decision-making?

Interestingly enough, even with the additional 10% tariff that President-elect Trump is threatening on Chinese imports, producing and importing in China may be the cheaper option compared to keeping your production in North America. Even more so compelling is moving your manufacturing to Southeast Asia (Vietnam, India, Thailand, etc), which is not subject to any tariff proposals right now.

Here’s an example. Say you are sourcing a similar stock plastic jar from Canada, China and Vietnam. In China, it costs $3 but in Canada, it costs 20% more, around $3.60. Under the current state, defined as 25% tariff on imports coming from China and duty- and tariff-free from Canada under USMCA, it makes sense to import from Canada. But with the 25% tariff implemented on Canada, this same jar is now imported for $4.50. Even with the 10% tariff increase on Chinese imports, the same jar from China now costs roughly 8% less.

But what if you choose to import the same jar from Vietnam? So far, President-elect Trump has not spoken of any tariffs imposed on imports from countries like Vietnam so, in this example, producing and importing from Vietnam is actually the most cost-effective.

As CPG brands navigate these challenges, we are focused on leveraging our expertise to help our clients find innovative, cost-effective solutions. From reimagining packaging designs to exploring alternative material sourcing and supply chain strategies, we are uniquely positioned to guide brands through this volatile landscape.

Get in touch to find out how we can help secure your packaging supply chain!