What Businesses Need to Do in the Face of New Tariffs

With new U.S. tariffs now in effect and retaliatory measures from other countries on the rise, businesses engaged in cross-border trade are facing a sudden spike in the costs of performance. Whether you’re importing goods into the U.S. or exporting abroad, these changes can materially impact the economics of your contracts and your ability to fulfill them.

In response, businesses are already taking action such as issuing notices to contract counterparties seeking to:

• Assert that the other party bears the burden of tariff costs
• Increase pricing
• Assert that their obligations are suspended by force majeure or similar provisions
• Terminate contracts entirely

For in-house legal, procurement, and commercial teams, the message is clear: now is the time to review your contracts. But doing so at scale, and under pressure, is no small task.

Here's what you need to know—and how AI-powered contract analytics can help.

Why Contract Review Matters More Than Ever

In an inflationary and protectionist environment, understanding the language buried in your contracts isn't just good practice - it is vital as it could determine whether a business unit remains viable. Tariff-related cost burdens, price adjustments and performance obligations often hinge on a handful of key clauses (which can vary widely from contract to contract).

To respond effectively, businesses need to rapidly answer key questions like:

• Who bears the cost of newly imposed tariffs?
• Can we increase our pricing to reflect increased costs?
• Are we permitted to suspend performance or terminate the contract?

Let’s walk through the provisions that are most likely to hold the answers.

Key Contract Provisions to Review in Light of Tariffs 

1. Tax Provisions

Many contracts prescribe how taxes are to be dealt with. Tax provisions in contracts can potentially allocate the burden of the tariffs to one of the parties, however, these provisions are far from being standard.

Some tax provisions will provide that certain taxes will be borne by a particular party (could be helpful in this situation depending on which side of the transaction you are on) in contrast to some tax provisions which simply provide that all payments will be made free or clear of withholding or deduction for taxes (less likely to be helpful in this situation).

Tax provisions also vary in how specifically they refer to taxes which they apply to (often hidden in tax-related definitions). The question here is whether the provision is drafted with explicit reference to tariffs or, in the absence of an explicit reference, drafted broadly enough to encompass tariffs.

2. Cost Allocation Clauses

Some contracts may include cost allocation or sharing provisions which allocate costs between the parties. As usual the devil is in the details and these provisions do vary widely in many ways including as to which costs they apply to. The wording needs to be reviewed carefully in each case.

In some cases, however, things may be clear - for example if a contract incorporates Incoterms so that:

• EXW (Ex Works) applies: then Buyer bears all costs, including tariffs; or
• DDP (Delivered Duty Paid) applies: Seller assumes all import duties and tariffs.

3. Price Adjustment or Escalation Clauses

Some contracts allow a party to increase prices based on certain specified cost increases or by reference to certain benchmarks or indexes such as CPI or commodity indexes – these provisions can alleviate the burden of changes. Some of these provisions allow the supplier more discretion to increase the price based on their own costs. Other provisions may be strictly tied to particular cost increases (such as tariffs) or a particular benchmark index but these may still be helpful if the effect of the tariffs has led to an increase in the relevant index. These provisions also vary widely in form and substance.

4. Force Majeure or Similar Provisions

Invoking a force major provision can be challenging as courts have been reluctant to allow parties to invoke more generally worded force majeure provisions in the context of increased costs as a result of tariffs or government action. The key to successfully invoking a force majeure clause is going to be the specificity of the language in the provision mentioning tariffs, changes of law affecting costs or action of government entities. The interpretation of force majeure clauses can vary by jurisdiction, so it is important to consult legal advisors once you identify the relevant provisions in the relevant contracts.

5. Termination Rights

Termination provisions vary a great deal with some provisions allowing termination in more circumstances than others. As always, it is a matter of reviewing the provisions to see if they can be triggered in the relevant circumstances. Termination provisions do have notice requirements - some of which can be lengthy - so, given the current situation, time will be of the essence in triggering termination.

AI-Powered Contract Review with Catylex Delivers Fast Results

Manually reviewing dozens (or hundreds or thousands) of contracts to identify and analyze certain provisions under tight deadlines can be daunting from a cost and time perspective. Even if you know what provisions to look for, collecting all of your contracts and analyzing these provisions is still overwhelming for many legal teams.

It doesn’t need to be. Catylex allows businesses to quickly identify the relevant provisions in hours so that they can be efficiently analyzed, enabling businesses to quickly respond to urgent business questions.

Whether you need to respond to counterparties or send out your own notices, Catylex gives your team the insight to act with speed and confidence.

And once this issue passes, you’ll still have a powerful AI tool in place and ready to tackle whatever issue comes next.

Ready to find out what’s really in your contracts?

Contact us to see how Catylex can help you prepare, respond, and stay ahead.