As U.S. President Donald Trump ramps up tariffs on major trading partners—especially China—the trade war continues to intensify, with retaliatory tariffs from China adding further fuel to the fire.

This escalating conflict is causing global supply chain disruption. Few industries feel the pressure more than packaging, which relies heavily on imported raw materials and overseas manufacturing—much of it rooted in China.

In this article, we’ll break down the impact of tariffs on packaging companies and manufacturers, and explore what practical strategies the industry can adopt to navigate through the storm.

What Are Tariffs?

Let’s start with the basics. A tariff is a tax imposed by a government on imported goods.

Tariffs are typically used to protect domestic industries by making foreign products more expensive, thereby encouraging consumers to buy locally made alternatives. They also serve to generate government revenue, reduce trade deficits, encourage domestic production, or apply pressure in diplomatic negotiations.

But who actually pays the tariff? Contrary to common belief, it’s not the foreign exporters footing the bill—it’s the importing companies, in this case, the American businesses, that are responsible for paying these taxes. While businesses may attempt to absorb some of the costs, tariff-related expenses are often passed down the entire supply chain, ultimately leading to higher prices for consumers.

For packaging companies operating in today’s global marketplace, understanding these tariff mechanics is the first step toward developing effective mitigation strategies.

U.S. Tariff Rates on General Imported Goods by Country (Updated May 12, 2025)

Country	Previous/Threatened Rate	Current Rate (under Tariff Pause)
China	145%	30%#
Mexico	25%	25%
Canada	25%	25%
Vietnam	46%	10%*
Thailand	36%	10%*
Taiwan	32%	10%*
Indonesia	32%	10%*
India	26%	10%*
South Korea	25%	10%*
Malaysia	24%	10%*
Japan	24%	10%*
European Union	20%	10%*

*Donald Trump announced a 90-day pause on the “reciprocal” tariffs until July 9, 2025, only imposing 10% baseline tariffs on most countries, except China, Mexico, and Canada.

^#The U.S. and China announced a 90-day pause in tariffs starting May 14, 2025. US tariffs on Chinese imports are reduced from 145% to 30%, and Chinese tariffs on US goods fall from 125% to 10%.

Note: This table does not include tariffs that were in place before 2025, or any sectoral or section-specific tariffs (e.g., steel and aluminum)

How Are Tariffs Affecting Packaging Industry?

1. Increased Costs

The Trump tariffs directly affecting both raw materials and packaging costs, have created a storm of rising expenses for the packaging industry in several ways:

Raw Material Price Surges

Many packaging manufacturers in the U.S. rely heavily on imported raw materials, including steel, aluminum, paper, and plastics. Smaller packaging companies, in particular, often outsource their production to Chinese factories due to lower labor and manufacturing costs. When global imported goods—including those from China, Mexico, and Canada—got hit with high tariff rates, material costs increased significantly.

Compounding Costs Through Complex Supply Chains

Packaging production is already a complex, multi-step process. It often involves a global supply chain where raw materials and intermediate goods cross borders multiple times. For example, pulp sourced from the U.S. may be sent to Europe for paperboard production, which is then shipped to China for packaging manufacturing, and finally exported back to the States. With tariffs potentially applied at each border crossing, costs can multiply quickly through the supply chain.

Logistics and Warehousing Expenses

Beyond direct material costs, supply chain disruptions and logistics challenges contribute to rising costs. Some companies pay more to expedite shipments before tariff implementation deadlines, while others incur extra expenses storing materials in the country of origin in hopes that tariff policies may ease.

Administrative Burden

The complexity of navigating tariff regulations has itself become a substantial expense. Companies must now dedicate significant resources to analyze evolving trade policies, calculate the impact on margins, and seek alternative suppliers. Many packaging businesses have found it necessary to engage external legal and customs expertise—an additional cost that particularly burdens smaller firms.

2. Decline in Profitability

With tariff-related costs increasing, profit margins across the packaging industry are under intense pressure. This is particularly alarming for small to medium-sized businesses, which often operate on tighter margins and have less financial flexibility to absorb these added expenses.

The impact can be severe. Industry estimates suggest that a 25% tariff could eliminate profit margins entirely for certain companies in the printing sector—a field closely tied to packaging. Similarly, the National Association of Manufacturers (NAM) has warned that a 25% tariff on imports from Canada and Mexico alone could add up to $144 billion annually to U.S. manufacturing costs. Small and mid-sized enterprises are expected to bear the brunt of this financial strain.

As profitability shrinks, businesses are forced to make tough decisions—whether it’s scaling back investments, delaying product development, or even reducing headcount. In a highly competitive market, such measures can threaten business viability.

3. Further Disruptions from Retaliatory Tariffs

As the trade war drags on with no end in sight, economists are sounding the alarm on broader economic fallout. Leading brokerage J.P. Morgan has raised the probability of a global recession this year from 40% to over 60%—largely due to mounting trade tensions.

Retaliatory tariffs are compounding the problem. China’s tariffs imposed on U.S. goods are directly impacting American agricultural exports, which in turn reduces demand for packaging solutions. This ripple effect is felt throughout the packaging supply chain.

The climate of uncertainty hinders business development. With trade policies constantly evolving and their duration unknown, packaging companies face difficulty in making confident long-term decisions. Important investments in production capacities, technological innovations, and new product development get postponed or even canceled. The result? A serious threat to the industry’s long-term growth and competitiveness.

Mitigation Strategies of the Packaging Industry

1. Adjusting the Supply Chain

Optimizing Inventories

Some packaging companies might have strategically stockpiled imported materials before the tariffs took full effect. By optimizing the use of these inventories, companies can create a short-term buffer against sudden cost increases. This is often the quickest and most cost-effective strategy for mitigating the initial impact of tariffs.

However, this approach isn’t feasible for everyone. Smaller businesses, which typically operate with tighter budgets and limited warehousing capacity, may not have the means to stockpile large inventories. Even for larger companies, this is a temporary fix rather than a long-term solution.

Looking ahead, the industry can take a more proactive inventory management approach, by leveraging advanced market demand forecasting and supply chain analytics. By predicting potential tariff fluctuations, companies can time their purchases more strategically, and build up reserves of critical materials during periods of price stability and ahead of known tariff deadlines.

Sourcing Suppliers from Other Countries

Reducing reliance on high-tariff regions like China is a key strategy for mitigating tariff impacts. By diversifying the supply chain and sourcing packaging materials or manufacturing services from countries with lower tariff rates—such as Vietnam, Malaysia, or other parts of Southeast Asia—packaging companies can lower their exposure to trade tensions.

However, this approach comes with other challenges. Identifying reliable alternative suppliers takes time, and building strong partnerships requires careful vetting, supplier contract negotiations, and long-term relationship management. The process is resource-intensive and not without risk.

Moreover, even if production is shifted to lower-tariff regions, the complexity of global supply chains means materials often still need to cross multiple borders. As seen in earlier examples, if tariffs are imposed at several stages of the production and distribution process, costs can quickly rack up.

Despite these challenges, developing a more geographically diverse supplier network remains a valuable strategy. It provides both immediate operational cost relief and long-term supply chain resilience against future tariff-induced disruptions.

Manufacturing in the U.S.

Another strategy is to shift sourcing and production back to the U.S.—a move aligned with one of the Trump administration’s core objectives: revitalizing domestic production. This approach offers the clear benefit of completely eliminating tariff exposure. However, the reality is far more complex.

The U.S. currently lacks the raw material capacity to meet the full demands of the packaging industry. Increased demand for domestically sourced, tariff-free materials would likely drive prices up even further. Moreover, domestic producers of packaging are still relatively limited—particularly when it comes to customization.

Custom packaging often requires specialized equipment, molds, and dies, all of which come with high upfront costs. Combined with higher labor costs and facility overhead, manufacturing in the U.S. might even end up with higher production costs than importing from China—even with tariffs included.

While reshoring may hold long-term potential, it’s not a quick or easy fix. Building sufficient domestic capacity would require years of investment, infrastructure development, and workforce training.

2. Re-engineering Packaging Products

Beyond reconfiguring the supply chain, packaging companies can also navigate tariff challenges by making strategic changes to packaging design.

Material substitution is a practical starting point. By selecting alternative materials that are more readily available domestically or that carry a lower cost per unit, companies can significantly reduce their exposure to tariffs. A notable example comes from beverage giant Coca-Cola, which considered shifting more of its packaging from aluminum cans—subject to steep aluminum import tariffs—to plastic bottles, which are often cheaper and easier to source.

Companies can also lean into innovation in sustainable materials. Options like advanced paper coatings, bioplastics derived from non-tariffed agricultural feedstocks, or packaging made from recycled content (such as PCR plastics or recycled paper fibers) offer dual benefits: cost mitigation and alignment with growing consumer demand for eco-friendly packaging.

Another effective strategy is structural redesign. By revisiting product specifications—reducing dimensions, minimizing material use, or consolidating format variations—packaging companies can drive down costs, improve production efficiency, and optimize shipping.

Ultimately, thoughtful design adjustments not only help offset tariffs but can also position brands as more agile and sustainability-minded under the challenging global trade dynamics.

3. Passing Cost to Clients

The most straightforward—but perhaps least desirable—response to rising tariff-related expenses is passing the cost on to clients. Large packaging companies like Amcor have publicly acknowledged this approach, stating that tariff-driven cost increases could be transferred downstream when necessary.

However, the ability to pass on these costs is often constrained by market dynamics. The packaging sector is intensely competitive, and smaller firms, in particular, lack the pricing power to adjust rates without risking client relationships.

Downstream businesses that purchase packaging, like consumer packaged goods companies and food producers, are typically resistant to price hikes. They worry that increased packaging costs will ultimately be passed on to end consumers, who may push back or turn to cheaper alternatives. This reluctance is even more pronounced during periods of economic uncertainty triggered by a prolonged trade war.

For most packaging companies, cost transfer is just one component of a balanced response strategy rather than a complete solution. Industry stakeholders should combine selective price adjustments with the supply chain modifications and product re-engineering approaches discussed earlier.

Be Prepared to Face the Challenges

The trade war shows no signs of easing, and the packaging industry must remain agile, resilient, and proactive in navigating this evolving landscape. Rising costs, disrupted logistics, and ongoing uncertainty are now part of the new normal, making flexibility and strategic planning more important than ever.

For small and medium-sized businesses concerned about the impact of shifting trade policies, PakFactory is here to help. With a robust global supply chain and long-standing partnerships with international manufacturers, we’re uniquely positioned to offer agile, cost-effective packaging solutions—even in the midst of geopolitical tensions.

Let’s work together to find the right tariff-free packaging strategy for your business. Consult with a packaging specialist today.