On 1 February 2025, President Trump issued an executive order imposing tariffs that impact a wide range of Canadian, Mexican, and Chinese goods imported into the United States. Although the tariffs against Mexico and Canada were suspended for a month, the President imposed additional 25% levies on Chinese imports which took effect from 4 February, prompting retaliatory measures by China.
The tariffs may present challenges to your business, particularly regarding costs, supply chains and contractual obligations. For example, a UK supplier may face higher costs for U.S. imports which potentially raises prices for customers, and it may cause supply chain disruptions including delays and increase transport costs.
With the possibility of further tariff announcement on the horizon, particularly with Trump’s recent announcement that a 25% tariff may be imposed on goods from Europe, this article will set out the impact and risk of the recent tariffs on commercial contracts and provide useful considerations for businesses operating in the global economy.
Force Majeure clauses
Force majeure events are usually defined in contracts as acts, events, or circumstances beyond the reasonable control of the party concerned. If an extreme, unforeseeable event occurs that prevents or delays a party from performing their contractual obligations, that party will not be in breach of contract because of delay/non-performance. Force majeure acts include natural disasters, acts of war or uncertain government action – is just one way your business can reduce its exposure to risk if things go wrong.
While Trumps Tariffs were introduced unexpectedly, tariffs are not necessarily unexpected or unforeseeable. Therefore, whether Trumps tariffs fall within a force majeure clause depend on the specific wording of the clause. If your business is seeking to rely on a force majeure clause, you should carefully consider what arguments and defences are available.
Termination for convenience clauses
Sometimes referred to as “termination without cause”, this clause allows parties to terminate for any reason provided that a certain period of notice is given by the terminating party ( the notice is usually in writing).
Your business should consider how termination clauses can assist them in mitigating against any uncertainty or risk created by the tariffs. It could offer your business an opportunity to use the tariffs to re-negotiate better pricing terms with the customer or supplier.
Timelines
One of the effects of the tariffs is that they may have increased cost for suppliers and/or created a shortage in sourcing certain materials. If your business is being forced to find alternative suppliers, you should be mindful that this may clause a delay in performing contractual obligations with your customers.
It is important that your business reviews any timelines applicable to customer contracts to understand whether tariffs will cause delays. If delays are foreseeable, your business should understand how it can address these delays to avoid a potential dispute.
Dispute resolution
Whilst the aim is to avoid engaging in formal disputes, businesses should nonetheless be prepared for what happens in the event of a dispute as a form of risk management.
It is important to understand what a contract says about what happens in the event of a dispute. Given the tariffs will often impact cross-border transactions with parties based in different jurisdictions, your business should consider the jurisdiction that governs the contract as well as the agreed dispute resolution process that is set out in the contract.
