Alienation Testing Can Buffer CPG Companies as Tariffs on Chinese Imports Jolt Supply Chains

Whether out of a desire to offer customers something new, or due to external pressures, consumer packaged goods (CPG) companies are always innovating. From unexpected, sustainably farmable ingredients (like seaweed) to creative food items catered to the new GLP-1 dietary support industry, a LOT is happening in the CPG industry.  

These days, external pressures—and uncertainty—are at an all-time high. China import tariffs are shaking up U.S. supply chains and essentially putting some ingredients and raw materials out of reach. It’s hard to know what will happen next, and it’s equally hard to know what to do.

One thing we can say for sure: Necessity’s offspring Innovation will be making an appearance. And when CPG companies innovate, they have to test their ideas and proposed changes thoroughly to maintain market share and avoid alienating loyal customers.  

Tariffs on imports: What’s actually going on?

Seems like things are changing by the nanosecond. The tariffs proposed (and in some cases implemented) during the early part of February 2025 can be summarized as:

• 25% tariffs on imports from Canada and Mexico. 
• An additional 10% on import tariffs from China to U.S. (The word “additional” is key, as there were already tariffs in place under the Biden administration, causing certain Chinese imports to be tariffed at more than 45%.)
• Removal of the “de minimis” exemption, in which less than $800 worth of imported goods wouldn’t be taxed. (Now they will, and this will make the low prices of companies like SHEIN and Temu harder to sustain.)
• Tariffs of 25% on both steel and aluminum coming from anywhere in the world. (Essentially, Trump reinstated his first-term 25% steel and 10% aluminum tariffs, increased the aluminum ones to 25%, and got rid of all exemptions.)

What are the current import tariffs on China specifically, and how do these compare to the original Section 301 tariffs that went into effect in Trump’s first term? It’s tricky to keep track of it all, but a frequently updated list of China import tariffs can be found on the Tax Foundation website.

Keep in mind that businesses may also be dealing with retaliatory U.S. import tariffs FROM China, Mexico, and Canada also. The situation is evolving every day, but no matter how things shake out, uncertainty has made its mark. Brands are trying to figure out their best next steps.

How import tariffs from China, Mexico, and Canada will challenge CPG brands

Most CPG companies can’t shift to domestic production due to concerns around labor costs and availability. Furthermore, many of the usual raw materials and ingredients for food and beverage products are no longer within easy reach. Some CPG companies may need to realign their supplier relationships, but this could impact:

• Whether they can keep incorporating the same ingredients or raw materials
• Whether they might need to change their packaging (either to a different material altogether, or to a reduced amount of the same material)
• Whether they might need to drop certain SKUs from their product line
• Whether they may need to raise prices or shrink portions (the dreaded and much derided “shrinkflation”)

Here’s a sampling of how the latest tariffs might hit home, industry by industry:

• Fashion. Only 3% of U.S. clothing is actually made in the U.S. Even when garments themselves aren’t made in China, the textiles most likely are. Clothing manufacturers using hemp fabric, for instance, were heavily impacted by the Trump 1.0 China tariffs. Dyes are another area of concern, as most of the world’s dyes are made in China and India.
• Pet food and toys. Independent pet toy retailers, in general, source the vast majority of their products from China. Many of these companies did have to raise prices during Trump’s initial China section 301 tariffs in 2019. Additionally, pet food manufacturers are concerned about tariffs impacting the price of tinplate steel for their canned products, and one high-quality pet food company owner is wondering where he’ll be able to get hormone-, antibiotic-, and GMO-free ingredients, if not from Canada.
• Alcohol. A large percentage of beer imports come from Mexico (roughly 80%). While beer production isn’t particularly location-specific, many spirits brands are very strongly tethered to their regions of origin. U.S. spirits brands like Kentucky bourbon are likely to face retaliatory tariffs from Mexico and Canada.    
• Cosmetics. Import tariffs from China to the U.S. include plastic, and this is where a lot of beauty brands may see costs shoot up. Plastic packaging constitutes a large fraction of the cost of producing many cosmetics products, and China has been the cheapest place to produce this packaging. Consumers may see packaging changes as a result of tariffs.

What to do? The fact of the matter is that manufacturing realities and supply chains have been fundamentally transforming for years now, and it’s important for companies to stay flexible yet strategic (and test any changes with real customer feedback).

How CPG businesses are responding to the trade war

Some businesses may simply try to absorb the higher costs and make do with lower margins in order to avoid losing market share. Others may pass some of the costs onto consumers, which is risky since the cost of essentials is still quite high and consumers are wary of spending on non-essentials.

Shrinkflation can be one way to keep prices consistent while appearing to offer the same amount of product, but beware that this can wickedly backfire if people start to notice and complain about it on social media. (Remember what happened with Chipotle.)

There may be some wiggle room to reformulate the ingredients list or diversify suppliers. For example, Steve Madden (famous for its trendy shoe designs) is looking at sourcing more materials from outside China. The main caveat here is that a supplier change or reformulation can result in a different look, feel, taste, or general perception of quality.

For luxury beauty brands, there is some evidence indicating brands may succeed in marketing their products as “ethically sourced” or “sustainable” or “Made in the USA” to sell at higher price points. That said, you don’t know for sure until you test.

Will you alienate your customer base? Put your changes to the test (safely)

Whenever a brand makes a change—no matter how subtle—it’s vital to test it. Does your face cream include an ingredient that’s made excessively pricey by the tariffs on Chinese goods? You’ll want to know whether your loyal customers will be fine with a substitute, or if they could be turned off to the point where they start buying a different brand.

In product testing research, alienation testing lets you measure the impact that a change to one of your products (or your packaging, or a change to your product line offering) will have on your target customer base. It’s all about understanding the make-or-break attributes of your product. Is it the particular feel of the fabric? The unobtrusive yet poo-masking scent of the kitty litter? The particular size of the vanilla bean specks that make the ice cream seem extra flavorful, whether or not they contribute to the actual flavor? Test, and ye shall know!

There are two main ways to conduct alienation testing: monadic and sequential monadic. In monadic testing, you’re only showing each group of testers ONE version of the product. You can compare how each group rates the “control” (current) product vs. the new version and see which gets a more positive response overall. In sequential monadic, which is more streamlined, testers see both versions in a randomized order and rate their preference.

Alienation testing is more than just surveys and feature ratings; it’s also about getting nuanced, qualitative data. You can have your testers write out their experiences with your product in a journal format, or you can interview them at length. Either way, AI market research tools can help you garner insights from this unstructured data.

You may think this type of in-depth, quality market research data from real target customers would be hard to come by, but with Highlight’s in-home usage testing (IHUT) platform supported by a highly committed, proprietary testing audience, you can get results in no time with minimal effort on your part. Highlight handles everything, from shipping to data collection, so that you don’t need to wait long to know which way to steer your business and how to innovate better products.

What do the tariffs mean for sustainability?

Ah, yes. The sustainability question. With China import tariffs impacting plastic and the aluminum/steel tariffs impacting things like beer cans, sustainable packaging may either take a hit, have a heyday, or both at the same time—it’s hard to know what to expect.

In some cases, it’s in the hands of the brands. There’s already been tremendous innovation in sustainable packaging that allows for less material of any type to be used. In the short term, however, we might see a lot of aluminum packaging get replaced with single-use plastics, which is not so great for the environment. (On the other hand, the carbon cost of a plastic bottle packaged in a plastic container down the road is much lower than that of a glass water bottle coming all the way from Europe. Buying local has big benefits for the planet.)

Tariffs may even encourage more mindful consumption among customers themselves. Instead of documenting their mind-boggling Shein hauls, fashion-forward customers might start thinking “less is more” … and pay more for the “less” because it has greater value. Claims testing can help determine whether your brand can appeal to customers with messaging like “sustainably made.”

It’s a tough situation with lots of uncertainty, but you can ride it out—and maybe make even better products

Staying in tune with your target customers will help you move forward strategically. With alienation testing powered by Highlight’s platform, you can determine whether a new formulation, product line reduction, packaging change, or another strategy will have the most positive impact on brand perception.

The uncertainty surrounding China Section 301 tariffs is headache-inducing for CPG brands. But by staying flexible and rigorously testing any changes you propose to make, you’ll get a lot of great customer insights that could help you make your product offering better than ever.

And if you need help riding out the choppy waters of today’s trade war, Highlight is here to be your guide!