How US Businesses Can Mitigate the Effect of Tariffs

Los Angeles, Calif. (April 17, 2025) - The United States has seen a dramatic change in tariff policy under the second administration of President Donald J. Trump. The tariffs are part of a larger effort to reduce trade deficits and bring manufacturing back to the United States. But the implementation of the tariffs has been fast and extreme, with tariffs imposed, modified, and suspended frequently, in some cases daily. The most stringent of the tariffs imposed to date have been tariffs on goods from China, one of the largest U.S. trade partners.

Tariffs necessarily will impact international contracts (i.e., contracts where products cross a national border) if the tariff is imposed on the underlying goods. Tariffs will also impact purely domestic contracts where the subject goods, or components thereof, are subject to tariffs imposed earlier in the supply chain.

The imposition of tariffs can therefore lead to massive financial consequences for businesses that fail to proactively address the quickly changing landscape. The effects of tariffs may not be felt immediately—especially for purely domestic purchasers who may not see price increases overnight. However, if the Trump Administration imposes lasting tariffs, their effects are likely to filter down to even purely domestic contractual relationships in short order.

It is therefore critical for businesses to not only understand how tariffs can impact them and their contract partners, but also to address the effects of tariffs in both existing and prospective commercial contracts via a series of risk shifting mechanisms. This alert provides a brief overview of steps businesses can take to accomplish these goals.

Existing Contracts

To implement an effective tariff-mitigation strategy, businesses should first look to existing commercial contracts to determine the effects of tariffs. Some considerations are:

• Does the contract already address tariffs? Many international contracts will already explicitly delegate tariff responsibilities to a single party or incorporate standard terms that assign responsibilities to a particular party. These provisions are less likely to be found in purely domestic contracts.
   
• Does the contract contain price adjustment provisions? Some contracts may contain mechanisms for adjusting prices that could include tariff adjustments or imposition.
   
• Does the contract accommodate supply chain disruptions resulting from tariff-related shortages, delays, or other effects? Some contracts may include provisions that offer some relief to the parties in the event of disruptions caused by the imposition or modification of tariffs.
   
• What can be done to fix contract provisions? If a contract does not clearly address tariffs, it is important to understand the process for amending the contract. Generally, the consent of both parties is required to amend a contract, making it less likely that a counterparty will accept a one-sided tariff adjustment. But there may be other ways for a party to consider favorable adjustments. For example, if a contract term is close to expiration, a party may have more leverage to require specific amendments.
   
• What if the contract is no longer viable? If the imposition of tariffs makes performance too difficult or expensive, businesses often consider ways to terminate or suspend performance. Force majeure provisions allow businesses to excuse non-performance if certain unforeseen circumstances occur, though specific contract language and case law in the applicable jurisdiction may not include tariff imposition as a “force majeure event.” Non-contractual doctrines such as frustration of purpose and impossibility may be alternatives to force majeure provisions, but would also require evaluation under the applicable law of the contract. Businesses may also resort to evaluation of termination rights in the event force majeure or non-contractual remedies are not possible.

Prospective Contracts

Businesses negotiating or contemplating contracts have more options by virtue of not yet being bound. Some key clauses this businesses can consider are:

• Tariff Allocation: Businesses can start by assigning responsibility for increases or modifications in tariffs to counterparties. This may require modifications on a case-by-case basis depending on which party actually has the obligation to pay tariffs. In other words, depending on negotiations, one party may be required to reimburse the other for tariffs that the other is required to pay.
   
• Price Adjustment: Parties should understand and evaluate how tariffs will impact contemplated price adjustment provisions. If businesses typically do not use price adjustment mechanisms, they may consider them now, or may implement shorter-term contracts to anticipate future tariff changes.
   
• Supply Chain Disruptions: Contracting parties should consider providing for unavoidable delays that may result from the need to find alternative non-tariffed suppliers or other contingencies.
   
• Force Majeure: Businesses can more explicitly address the impact of tariffs in force majeure provisions to address the potential risk that a court may determine that tariffs are not force majeure events.
   
• Termination Rights: If contracting parties are unable to agree on tariff allocation provisions, they may agree in advance to specific termination rights if tariff increases are too impactful.
   
• Indemnification Rights: If a contract assigns tariff responsibilities to a particular party, corresponding indemnification provisions may allow the party to protect itself from losses in the event its counterparty fails to comply with a payment or reimbursement obligation and fines or penalties are assessed.

Key Takeaways

Tariff laws and regulations remain rapidly changing, and will be subject to future changes. Businesses that do not quickly address the effects of tariffs may face a series of financial hurdles. It is therefore critical to evaluate these risks for both existing and prospective contractual relationships.

The examples above are just a few of the potential provisions that may impact existing and prospective contracts. The specific provisions that parties may implement will change from contract to contract, and there is no one-size-fits-all approach. Businesses should consult with their counsel to determine the best provisions for their contracts.

Lewis Brisbois’s attorneys are actively engaged in the wide range of legal issues in this area and are advising clients on managing legal and business risk as events continue to develop at an accelerated pace. For more information, contact the author or editors of this alert. Visit our Ukraine Conflict, International Trade, Export, Import and Investment Controls & National Security Practice page for additional alerts in this area.

Author:

Griffen J. Thorne, Partner

Editors:

Andrew Pidgirsky, Partner and Chair of Ukraine Conflict, International Trade, Export, Import and Investment Controls & National Security Practice

Thomas A. Brooks, Partner

Jane C. Luxton, Managing Partner - Washington, D.C.