Just over a week ago, on 2 April 2025, President Trump announced a sweeping set of tariffs which would apply to almost all US trade partners. Following a recent 90-day pause on the implementation of the most severe tariffs, exporters to the US will still face a baseline flat rate of 10% tariffs, with an increased rate of 25% applying to all car exporters to the US. It appears that China's exporters to the US will face significantly higher tariff rates.
The imposition of tariffs can significantly impact various businesses including businesses which:
- Export to the US;
- Have US operations; and
- Rely on materials from China (which has been hit with some of the highest tariffs).
The new tariffs may have a material impact on a range of contractual relationships and give rise to various international disputes.
In this note, we cover key issues that businesses may need to consider in relation to their existing or future contractual relationships, and whether the new tariffs give rise to contractual claims.
- Specific clauses addressing changes in the law. Some contracts may contain specific clauses addressing the consequences of changes in law, such as tariff changes. Given recent events, it may be worth considering the inclusion of such clauses in future contracts, and where they are included in existing contracts, such clauses may need to be closely examined.
- Events allowing for termination. Contracts often provide for
the possibility of termination or suspension of obligations on the
occurrence of "force majeure events" or "material
adverse changes" (which are often pre-defined in the
contract). Force majeure events typically encompass events beyond
the control of the parties and may include governmental action.
Material adverse change (MAC) clauses provide for certain outcomes
if specified events occur that significantly affect the bargain
struck.
Careful examination of the precise wording of any force majeure and/or MAC clauses will be necessary to determine the rights and obligations of the parties. In existing contracts, force majeure and/or MAC clauses may allow for the possibility of termination. - Modification. Some contracts may include clauses which provide for the possibility of modifying the parties' contractual relationship. These may include price review clauses, price adjustment clauses or clauses requiring parties to renegotiate certain key terms in the contract.
- Obligation to perform despite hardship, unless an exception. Absent a specific clause, contracts will generally require performance of contractual obligations even if events, such as the imposition of tariffs, have made performance more difficult than anticipated. However, under some legal systems, there may be general doctrines which may be invoked to excuse non-performance if events fundamentally change the parties' contractual relationship.
- Termination and/or compensation. A party may also be entitled to terminate a contractual relationship and/or seek compensation under the contract if there is non-performance. This could be for breach by a counterparty of its contractual obligations, or through the operation of other clauses, such as deadfreight clauses in charterparties.
- Dispute resolution. The majority of contracts will contain dispute resolution clauses, either providing for recourse to domestic courts or arbitration. These clauses will need to be carefully examined in order to make sure that rights are protected and enforced.
In light of the impact that new tariffs may have on existing and future contractual relationship, it is vital for businesses, when considering their specific circumstances and available options, to look carefully at the wording of the applicable contract and seek early advice to ensure that their rights are properly protected.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
