Tariffs in flux: What CPG brands need to know about ‘unavailable natural resources’ and cost pressures

Trump administration trade policies, particularly tariffs on 'unavailable natural resources' and packaging materials, are unevenly impacting corporate supply chains and profitability. While some flexibility exists, exemplified by the Indonesia palm oil agreement and USMCA exemptions, tariffs on essential imports like coffee and tin mill steel are forcing manufacturers to raise prices and adapt through efficiency gains and sourcing changes. This dynamic signals ongoing cost pressures and volatility for consumer goods companies, with smaller businesses facing greater challenges amidst a fluid trade policy environment.

Analysis

US trade policy is creating significant but uneven pressure on consumer packaged goods (CPG) supply chains, primarily through tariffs on 'unavailable natural resources' and packaging materials. While the Indonesian palm oil agreement sets a precedent for potential exemptions on imports that constitute a high percentage of US supply (e.g., over 80%), other critical commodities like Brazilian coffee (over 30% of US supply) remain subject to tariffs with no viable domestic substitution, directly impacting manufacturer costs. A particularly acute pressure point is packaging, with tariffs reaching 50% on materials like tin mill steel, for which US production meets only 20% of demand. In response, CPG companies are intensifying efforts to improve operational efficiency through automation and AI, reformulating products, and adjusting sourcing strategies. However, this fluid and unpredictable trade environment disproportionately challenges smaller businesses with limited resources, while larger firms are better positioned to absorb shocks. The core issue is persistent volatility, forcing the private sector to adapt to a new normal of continuous negotiation and supply chain uncertainty.

Key Decisions for Investors

• Investors should scrutinize the gross margins of CPG companies, as tariffs on key inputs like coffee and tin mill steel are creating direct and persistent cost pressures.
• Consider overweighting larger CPG firms that possess the scale to diversify sourcing, absorb costs, and invest in efficiency, as they are better insulated from supply chain volatility than smaller competitors.
• Monitor for further trade exemptions on 'unavailable natural resources,' as policy shifts similar to the Indonesian palm oil agreement could materially alter the cost structure for specific companies.
• Evaluate a company's dependency on imported packaging materials such as steel and aluminum, as this represents a significant, non-discretionary cost vulnerability with limited near-term solutions.