Navigating Tariff Uncertainty: Key Provisions for Cross-Border Contracts

Strategic Insights -

Tariffs and related trade policy developments are having significant impacts on cross-border relationships and contracts, rendering it essential to review agreements for terms allocating tariff risk and rights and obligations. Companies can mitigate losses by understanding contract provisions, including hardship and material adverse change clauses, force majeure clauses, and pricing mechanisms. By evaluating these clauses in both "high" and "low" tariff scenarios, companies can adapt to the evolving geoeconomic landscape and protect their interests.

Key Takeaways:

  • Hardship and material adverse change (MAC) clauses can provide a remedy if a change in circumstances renders performance excessively burdensome or impractical.
  • The precise wording of these clauses is crucial, with thresholds that allow for a remedy set at different levels, such as requiring the change to be unforeseeable or affecting the balance of the contract.
  • Force majeure clauses enable a party to suspend or terminate its contractual obligations without liability if an unforeseeable and unavoidable event beyond its control prevents or impedes its performance.
  • Tariff changes do not always fall within the scope of listed events in force majeure clauses, but parties can argue that the clause has been triggered under specific circumstances.
  • Price definitions and pricing clauses must be carefully examined to determine which party bears the increased costs from tariffs.
  • A duty to mitigate loss arising from tariff disruptions is commonly imposed on affected parties, who must take steps to minimize their losses and adapt to the changing trade environment.
  • Boeing's recent conduct demonstrates a practical approach to mitigating losses, with the company seeking to minimize costs by realigning its aircraft supply chain.
  • It is crucial to review agreements for terms that allocate tariff risk and rights and obligations to understand the rights and obligations in the face of tariff changes and to anticipate potential challenges.
  • Companies should proceed with caution and consider drafting and negotiating new contracts, as well as updated contracts, to reflect the complexities of the current trade environment.

Statistics:

  • According to Art. 1195 of the French civil code, hardship clauses can be available even if not explicitly included in a contract, providing a statutory basis for relief.
  • In the English case Associated British Ports v. Tata Steel, 2017, Tata Steel argued that US steel tariffs contributed to a "major...financial change in circumstances affecting the operation" of its works at Port Talbot, Wales, justifying a renegotiation.
  • The pro forma ICC force majeure clause was amended in 2020 to include "trade restriction" in its list of force majeure events.
  • Shelter Forest Int'l Acquisition v. Cosco Shipping (USA), an Oregon-based lumber importer, was unable to rely on a force majeure clause in a fixed-price contract with a Chinese shipping company when the US imposed new tariffs on Chinese wood products.

Sources:

  • Foley Hoag LLP, "Tariffs and Force Majeure: Why It's Time to Review Your Contracts" (2025)
  • Art. 1195 of the French civil code
  • Associated British Ports v. Tata Steel, 2017 (English case)
  • Shelter Forest Int'l Acquisition v. Cosco Shipping (USA)
  • ICC (International Chamber of Commerce) force majeure clause (2020 version)
  • Mondaq, "Tariffs and related trade policy developments are having significant impacts on cross-border relationships and contracts" (2025)