Impact of Tariff Policy Changes on International Transactions and Strategic Contractual Responses
In recent months, President Trump's sudden and significant tariff hikes have driven the average U.S. tariff rate to 7.0%, the highest since 1969. These abrupt changes are creating major uncertainty for businesses engaged in international trade. Companies now face unexpected cost increases, disrupted supply chains, and the risk of contract disputes.
Rather than reacting passively to headlines, businesses must proactively manage tariff risks through well-drafted contractual provisions. Tariff clauses are no longer optional—they are essential. This article explores key contractual clauses and practical response strategies, drawing on real-world examples and lessons from Brexit.
How Are Current Tariff Changes Affecting Contracts?
As of mid-2025, global tariff policy is undergoing rapid shifts. The resulting impact on international trade is substantial. With the U.S. average tariff rate reaching record highs, tariff risk management has become a central concern in cross-border contracting.
In this environment, reviewing existing contracts and carefully designing tariff-related clauses in new contracts is more critical than ever. This article focuses on how to address tariff risks in contracts through Incoterms, Material Adverse Effect (MAE) clauses, and Force Majeure provisions—supplemented by insights from Brexit-related legal responses.
How Should Tariff Clauses Be Reflected in Contracts?
The DDP (Delivered Duty Paid) Incoterm often places full tariff burden on the seller, meaning that sudden tariff increases can directly impact the seller's margins. To address this, it is advisable to include price adjustment mechanisms, such as a provision allowing renegotiation if tariffs increase by more than 10% from a baseline rate.
Under FOB or CIF terms, buyers bear the tariffs, but overall cost increases may still affect the economic viability of the deal. Contracts using these terms may benefit from a clause requiring review or renegotiation if tariff hikes exceed a defined threshold.
New contracts should incorporate flexibility into Incoterm selection—for example, allowing for conditional shifts between DDP and DAP, or automatic term adjustments if alternate transportation routes are used.
Using MAE Clauses to Manage Tariff Risk
MAE clauses should clearly include tariff-related triggers. For instance, an MAE could be defined to include:
Increases of 15% or more in applicable tariffs
New import restrictions
Customs delays exceeding 30 days due to regulatory changes
Such clauses should be distinguished from general economic changes like currency fluctuation or market downturns, ensuring that tariff risks are addressed as a separate category.
If an MAE occurs, the clause should outline a three-step resolution process:
Good-faith negotiations between the parties within 30 days
Possible price adjustment or contract amendment
Termination or dispute resolution if no agreement is reached
Refining Force Majeure Clauses
Courts reviewing Brexit-related claims often rejected force majeure arguments for policy changes deemed foreseeable. The same risk applies to tariff changes. To be effective, force majeure clauses must be precisely drafted. Suggested language may include:
Sudden changes in tariff policy with less than 30 days’ notice
Increases in tariff rates by more than 30%
Implementation of new import bans or quotas
The clause should also require the affected party to promptly notify the counterparty, explore alternatives, and provide regular updates during the disruption.
What Can We Learn from Brexit Clauses?
The Brexit process illustrated how poorly drafted provisions can lead to disputes. Legal uncertainty over MAE and Force Majeure application became widespread. Key lessons include:
Prioritizing prevention over cure: Advance drafting is more reliable than post-event litigation
Avoiding vague terms: Use specific thresholds (e.g., 10% tariff increase), reference dates, and defined scope of affected goods
Practical Strategies for Risk Management
Reviewing Existing Contracts
Priority should be given to contracts that:
Use DDP terms for long-term supply
Involve high-tariff goods
Depend on sensitive intermediate goods
Checklist for risk evaluation:
Is tariff responsibility clearly allocated?
Are price adjustment mechanisms included?
Does the MAE clause cover tariff changes?
Does the force majeure clause cover policy shifts?
Are renegotiation or termination rights specified?
Drafting New Contracts
Recommended clause package:
Tariff responsibility and adjustment terms
Price renegotiation procedures
Exit and dispute mechanisms
Example clause: “If tariffs applicable to the goods increase by more than 20% from the rate in effect at the time of contract execution, the affected party may request renegotiation in writing. If no agreement is reached within 30 days, either party may terminate the contract with 30 days’ written notice. Customs delays of more than 30 days due to tariff changes shall constitute a force majeure event.”
Additional contract structuring tips:
Favor short-term contracts with renewal options
Include minimum/maximum order volume ranges
Allow quantity adjustments in response to tariff shifts
Sector-Specific Approaches
Manufacturing: Include alternative sourcing clauses in raw material contracts; consider tariff pass-through clauses in export contracts
Retail/Distribution: Automate price adjustments based on tariff changes; incorporate stop-order rights tied to inventory risk
Construction: Ensure the contractor can recover increased tariff costs for imported materials; reinforce delay liability protections
Looking Ahead: Tariff Trends and Contract Evolution
Sustained unpredictability: Tariff fluctuations will likely continue
Bilateral trade deals: Expect more fragmented and country-specific tariff regimes
Recommended evolution in contract practice:
Use smart contract triggers for automated tariff tracking and price adjustments
Develop advanced escalation clauses that factor in tariffs, exchange rates, and commodity costs
Conclusion and Recommendations
Tariff policy changes are no longer anomalies—they are a persistent factor in global business. Companies must go beyond boilerplate contract terms and implement dynamic risk management through forward-thinking contract drafting.
Action items:
Audit existing contracts for tariff exposure
Build industry-specific clause templates
Monitor policy changes with a structured alert system
Quick, flexible adaptation is more valuable than rigid defenses. Based on the strategies outlined here, businesses should develop tailored responses aligned with their transaction types and risk profiles.
If you need support reviewing your contracts or implementing tailored clause templates, LexSoy Legal LLC can help. For inquiries, please contact us at contact@lexsoy.com.
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