Lowering your Tariffs: A Strategic Guide

Re-Engineering CPG Products to Reduce Tariffs: A Practical Guide

Highlights for CPG Brands

• Tariffs on CPG goods can vary based on materials, ingredients, and packaging.
• Country of origin and supply chain routing critically affect duties.
• Reformulation, repackaging, or sourcing adjustments can significantly reduce tariff costs.
• CPG companies can benefit from modular product design and assembly abroad.
• Compliance with labeling, health regulations, and documentation is essential.

Introduction

Tariffs are a growing concern for Consumer Packaged Goods (CPG) companies that rely heavily on global supply chains. From cosmetics and household items to snacks and beverages, CPG products are often hit with high import duties—especially when components or ingredients are sourced internationally.

In this article, we explore how CPG companies can re-engineer products and packaging to minimize tariffs without compromising quality, brand integrity, or compliance.

Why Tariffs Hit CPG Companies Hard

CPG products often face complex tariff issues because they:

• Combine multiple ingredients or components, each with different duty rates.
• Use packaging that may be dutiable separately (e.g., glass vs. plastic containers).
• Contain value-added processes (like flavoring or enrichment) that change classification.
• Are often imported in high volumes, amplifying the financial impact.

Understanding these dynamics is critical for cost optimization.

Top Re-Engineering Strategies for CPG Tariff Reduction

1. Reformulate Ingredients Strategically

Tariffs often vary by ingredient, especially in food, beverage, and cosmetics categories.

• Swap high-duty inputs (e.g., dairy derivatives, exotic extracts) for lower-duty or domestically sourced alternatives.
• Adjust concentration levels of active ingredients to reclassify the product under a less expensive HS code.
• Use blends where individual components may be non-dutiable or lower duty when combined.

Example: Reformulating a lotion to reduce the percentage of botanical oils could shift it into a lower tariff bracket.

2. Repackage Smartly

In CPG, packaging can contribute significantly to duty rates.

• Shift from glass to recyclable plastic or flexible packaging to lower classification duties and reduce shipping costs.
• Separate primary packaging (bottles, cans) from secondary retail packaging (cartons, boxes) and assemble locally.
• Reassess multi-pack bundles, which may be taxed differently than single items.

Example: Selling shampoo in refill pouches rather than rigid bottles can change both tariff classification and logistics costs.

3. Disaggregate Kits and Multi-Component Products

Tariffs often apply differently to bundled items (e.g., gift sets, promotional packages).

• Import components separately and assemble domestically to avoid composite tariff rules.
• Unbundle promotional kits and assess whether each item qualifies for lower tariffs on its own.

A grooming kit imported as one unit might face a 12% duty, while individual razors and lotions could average 4–5% when shipped separately.

4. Leverage Country of Origin Rules

CPG companies can benefit from sourcing and assembly changes:

• Move final blending, flavoring, or filling operations to countries with favorable trade agreements (e.g., Mexico, Vietnam, Canada).
• Use “substantial transformation” principles to establish a new country of origin that qualifies for duty-free or reduced-duty entry.
• Qualify for Generalized System of Preferences (GSP) or similar programs for certain CPG categories.

Blending and packaging a tea product in a GSP-eligible country can shift the origin—even if the raw leaves come from elsewhere.

5. Optimize Supply Chain & Labeling Compliance

Labeling and declarations can affect how customs classifies CPG products.

• Use precise, compliant product labeling that supports your intended HS code.
• Work with customs brokers and trade attorneys to obtain Binding Rulings for new product formulations or packaging changes.
• Standardize SKU specifications across markets to reduce reclassification risk.

Mislabeling a “cosmetic moisturizer” as a “medicated lotion” can increase tariffs and trigger regulatory reviews.

Compliance is Critical

CPG companies must walk a fine line—reducing costs without violating trade laws or misclassifying products. Penalties for non-compliance include:

• Retroactive duty charges
• Product seizure
• Brand damage due to regulatory scrutiny

To stay safe:

• Document all re-engineering changes
• Track material origin with precision
• Conduct internal audits and work closely with customs experts

Conclusion

For CPG companies operating in highly competitive and margin-sensitive markets, tariff optimization through product re-engineering can be a game-changer. Reformulating, repackaging, or relocating minor steps in the supply chain can unlock major cost savings—without sacrificing product integrity or speed to market.

As global trade regulations evolve, proactive CPG brands that integrate tariff strategy into their product design and sourcing decisions will hold a lasting advantage.