In an increasingly volatile global trade environment, businesses face growing exposure to tariffs and other import/export-related duties. Whether imposed in response to geopolitical tensions, trade policy shifts, or retaliatory measures, tariffs can quickly upend pricing models, supply chain economics, and profit margins.
One of the most effective ways to manage this risk is through well-drafted commercial contracts. Below are key contractual considerations that every company should evaluate to protect its financial interests.
Tariff Adjustment Clauses
A tariff adjustment clause allows parties to revisit pricing or renegotiate terms if applicable duties increase, or new tariffs are imposed.
Best Practices:
- Define the triggering events (e.g., percentage increase in tariff rates, introduction of new trade barriers).
- Specify the mechanism for price adjustments, including thresholds, calculation methods, and notice requirements.
- Address whether adjustments apply retroactively or only on a going-forward basis.
Clearly Allocate Responsibility for Duties
Ambiguity over who bears the cost of tariffs can lead to disputes. Contracts should unambiguously assign responsibility for:
- Import duties, tariffs, and customs fees
- Changes in applicable trade regulations
- Costs related to compliance or reclassification
This allocation should be consistent with the agreed Incoterms, which dictate who is responsible for shipping, insurance, and customs clearance.
Incorporate Force Majeure Language that Captures Trade Barriers
Traditional force majeure provisions often overlook tariffs and trade actions as triggering events. Modernized clauses should explicitly include:
- Tariffs, embargoes, or export restrictions
- Government-imposed trade limitations or sanctions
- Unforeseeable regulatory changes affecting performance or cost
These provisions can excuse non-performance or delay or provide a basis for contract suspension or renegotiation.
Address Re-Sourcing and Supply Chain Disruptions
Tariffs may compel businesses to shift suppliers or production locations. Contracts should anticipate these potential changes.
Considerations include:
- The right to substitute suppliers or alter the country of origin for goods.
- Adjustments to delivery timelines or production specifications due to sourcing changes.
- Notification and approval requirements for implementing supply chain modifications.
Consider Escalation and Termination Rights
When tariff impacts become economically unsustainable, businesses may need the flexibility to exit or renegotiate the contract.
Provisions may include:
- Escalation clauses that require executive-level review or mediation upon major tariff-related impacts.
- Early termination rights if tariffs exceed a specified percentage of the contract value.
- Dispute resolution mechanisms tailored to cross-border commercial contexts.
Ensure Customs and Trade Compliance Provisions Are In Place
In addition to financial risk, non-compliance with trade laws can expose businesses to penalties and reputational damage.
Contracts should:
- Require parties to warrant compliance with all applicable customs and trade laws.
- Include indemnification provisions for misclassification, transshipment violations, or documentation errors.
- Mandate cooperation in audits, investigations, and disclosures to customs authorities.
Conclusion
Tariffs are not just a cost of doing business – they are a dynamic legal risk that should be directly addressed in contractual relationships. Businesses that fail to allocate tariff burdens clearly or plan for trade disruptions may find themselves absorbing unexpected costs or facing legal disputes.
At Oberman Law Firm, we work closely with clients across industries to develop customized contract language that mitigate tariff risks and protect long-term business value. Whether you are negotiating new agreements or updating existing contracts in response to global developments, our attorneys can help ensure your interests are safeguarded.
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