Tariffs and supplier contracts

Since the change in administration in the United States in January, tariffs have barely left the headlines. The Trump Administration has announced a range of country and product specific tariffs with a barrage of tariffs announced on 2 April 2025 which left the UK with a tariff of 10% on exports to the United States and other countries with significantly more extreme tariffs. Since then, the Trump Administration has paused the extensive tariffs announced on 2 April for most countries leaving them with the same blanket 10% tariff on all exports to the United States as the UK although many of the other tariffs previously announced (e.g., 25% tariffs on imports to the United States of cars, steel, and aluminium) remain in place. While the dust is starting to settle for the short-term, the lay of the land in the long-term remains far from clear and retaliatory tariffs are still not off the table. 

The UK and the US are key trade partners with substantial imports and exports going both ways across the Atlantic. Therefore, UK businesses could well feel the sting of tariffs even if they are not directly involved in imports and exports. In this article, we will consider some of the things you should watch out for in your contracts in order to protect your business from the risks arising from tariffs.

Refresher on tariffs and their risks for commercial contracts

Tariffs are duties (taxes) imposed on goods or materials being imported from other countries. In general, tariffs are paid to the government by the companies who import the goods or materials. 

Some of the potential commercial risks arising from tariffs include:

• Increased costs of goods and materials: This will first hit companies directly involved in imports and exports but most companies will choose to pass some (if not all) of their increased costs down the supply chain, or alternatively to their customers. 
• Delays and disruption: tariffs can cause rapid changes to demand/supply and your supplier may struggle to operate as effectively due to increased operating costs. It is also possible that your supplier could choose to withdraw from your market until exemptions are negotiated. Each could result in delays and disruption in your supplies of goods or materials, and potentially create issues with end customers (including delays and possibly breach). Delays and disruption could also be caused by increased regulatory requirements such as updated import/export documentation.

Check your supply chain and your customer terms

As a starting point, you should assess your exposure to the risks of tariffs by reviewing your supply chain to identify which of your suppliers and goods/materials may be impacted by the tariffs. At this point, it would also be sensible to consider contingency plans (such as alternative suppliers) for essential goods and materials that are essential to the operation of your business.

As discussed above, tariffs and their associated administrative burdens can result in delays, increased costs and shortages. When conducting your review of your supply chain, you also need to assess the impact the tariffs could have on your upstream obligations (e.g., if performance of your own contractual obligations could be delayed) and what risks this poses to your business. 

You should keep your supply chain review up to date. At present, the landscape surrounding tariffs is evolving very quickly with new tariffs being announced and deals being made to avoid or rescind tariffs between countries. 

Increasing costs

For many businesses, the main concern will be whether a tariff is going to result in increased costs and whether your suppliers can pass on any increased costs arising from tariffs to you. In order to avoid this, you should firstly ensure that each supply contract is clear about who will bear the risk of price increases, and secondly check your upstream contracts with your customers – do these allow you to pass on the impact of tariffs?  Even if they do, commercially you may decide not to do so if the impact on your long term relationship will be significant.  

If you are in a very strong bargaining position, then you may be able to specify that prices are fixed and that the supplier is responsible for bearing all tariff related costs which would mean that the supplier will bear the responsibility for absorbing any increased costs. 

Some suppliers may attempt to insert a clause which transfers the risk of price increases to you. The operation of these clauses can vary from suppliers seeking to have the ability to increase their prices at any time, to more limited clauses enabling suppliers to increase prices where the cost of supplying the goods or materials increases due to a change in the law or taxes during the life of the contract. If possible, you should resist the inclusion of broad price increase clauses which give the supplier significant freedom to introduce price increases. If you are not in a strong enough position to entirely resist the inclusion of such a clause, then you could seek to limit its effect as far as possible by (for example) capping the level of the price increase by a set percentage. 

Delays and non-performance of contractual obligations. 

As discussed above, the introduction of tariffs can result in delays and non-performance of contractual obligations by suppliers. 

Force majeure clauses may be used by suppliers to try and escape liability where the supplier is delayed from performing or is unable to perform its contractual obligations due to an unforeseen event outside of its control. It is often the case that the contracts will list events that amount to force majeure events such as earthquakes, acts of war, natural disasters, and acts of government (amongst other things). Alternatively, force majeure clauses may simply refer to ‘events beyond a party’s reasonable control rather than providing a list of triggering events. 

We would not usually expect tariffs or increased costs resulting from tariffs to be force majeure events so this should be resisted. While a supplier could seek to argue that tariffs are an ‘act of government’ (which is often a force majeure event), most force majeure clauses require a party’s performance of its contractual obligations to be prevented or made impossible due to the force majeure event. If it is the case that the party can perform is obligations but at a greater cost to that party, unless specified otherwise, it should not of itself be deemed to give rise to force majeure (or any other relief). However, the precise drafting of each force majeure clause should be carefully reviewed, and you should resist attempts from suppliers to extend the scope of force majeure clauses to excuse non-performance due to tariff related price increases (or to give rise to a right to a price increase) unless this arises due to specified agreed parameters.

You should ensure that you have the contractual remedies you need in the event of delays or non-performance of contractual obligations including where these arise from tariffs. For instance, you could specify that 'time is of the essence' for deliveries of goods. This would enable you to bring a claim for damages in the event of delay or non-performance and give you the option to terminate the contract if deliveries are not made on time. It is particularly important to ensure that, to the extent possible, rights and remedies in supply contracts mirror those “upstream” with customers – if for example a supply contract allows for termination for a broad force majeure event such as tariffs, but your end customer agreement does not do so, there is potential for a “delta” between the two and therefore significant exposure.

Termination rights

You should check your termination rights, particularly if you have been unable to resist the inclusion of a price increase clause, as you could find yourself subject to a tariff induced price increase but be without a means of exiting the contract. 

If in a strong bargaining position, you may be able to negotiate a termination for convenience right (i.e., a right to simply terminate on notice as opposed to where the supplier is in breach) with a reasonably short notice period which may enable you to exit the contract to escape tariff induced price increases. If your bargaining position is weaker, then you may be able to agree a more limited termination right so that you can terminate only in the event that you do not agree to a proposed price increase. 

We would expect the exercise of termination rights to be a last resort and it would only really be a viable option where you can engage an alternative supplier with more competitive pricing. 

Engage with your suppliers and customers

Communication with your suppliers and customers is key and may enable you to work collaboratively to find alternative solutions (particularly if you are contracting on weaker terms). You may be able to agree solutions to mitigate increasing costs by renegotiating contracts, bulk purchasing, or assessing alternative sourcing options.