Contract Strategies for a Volatile World | Tariffs & Trade

🌍 Tariffs & Trade: Contract Strategies for a Volatile World

In today’s volatile global trade landscape, tariffs are more than just taxes—they’re geopolitical tools that can significantly impact international supply chains and cross-border business relationships.

What Are Tariffs?

Tariffs are customs duties imposed on goods that cross international borders. While they can apply to both imports and exports, they are most commonly imposed on imports—as seen in recent U.S. trade policy. Tariffs are often product-specific, but they can also be geographically targeted. Whether used to raise revenue or serve strategic political goals, tariffs directly influence the cost and flow of international trade.

How Do Tariffs Affect Cross-Border Trade?

Tariffs directly affect your cost base, pricing structure, and delivery schedules. If your goods become more expensive to import, the impact will ripple through your supply chain—and potentially your customer base.

But here’s the key: who actually pays the tariff may depend on your contract, not just customs regulations. Without clear terms, the importer may be left with the burden. Well-structured contracts, however, can shift, share, or control that cost exposure.

What Contract Clauses Can Mitigate Tariff Risk?

Here's how to protect your business from tariff-related shocks through thoughtful contract design:

✅ Cost Allocation & Incoterms®

Start with delivery terms. Incoterms® 2020 are internationally recognized trade terms that define who pays what during international delivery—including tariffs and duties.

For example:

• Under EXW (Ex Works) or FCA (Free Carrier), the buyer bears import costs.
• Under DDP (Delivered Duty Paid), the seller takes on those duties.

Be explicit about:

• Who is the importer of record
• Whether prices are inclusive or exclusive of duties
• What happens if new duties are imposed mid-contract

This avoids confusion and ensures that risk is aligned with commercial intent.

✅ Price Adjustment Clauses

Tariff fluctuations can blow up profit margins overnight. A price adjustment clause provides relief by allowing changes to the contract price in response to new duties or increased costs.

These mechanisms can take several forms:

• Automatic adjustments, based on a formula or index
• Renegotiation triggers, activated when tariff changes exceed a certain threshold
• Cost-sharing arrangements, where increases are split between parties

Such clauses offer commercial flexibility, reduce the risk of disputes, and help maintain business continuity when unexpected costs arise.

✅ Force Majeure

Force Majeure provisions excuse non-performance due to unforeseeable, uncontrollable events—but they typically apply when performance becomes impossible, not just more expensive.

Tariffs rarely qualify unless the clause is drafted to include:

• Governmental actions,
• Trade restrictions, or
• Specific references to economic events like sudden tariff surges.

Review your Force Majeure clause to confirm what it covers—and consider broadening the scope to include trade-related disruptions if relevant to your sector.

✅ Hardship Clauses

Unlike Force Majeure, hardship clauses address situations where performance is still possible but has become excessively burdensome or uneconomic due to unforeseen events—like dramatic tariff increases.

A robust hardship clause should:

• Define what constitutes a hardship (e.g. tariff increase >10%)
• Allow for renegotiation of pricing or other key terms
• Include a fallback mechanism if no agreement is reached (e.g. termination or third-party decision)

This clause provides a structured, contract-based path to flexibility without breaching the agreement.

✅ Termination Rights

When all else fails, having a clear termination clause can be a vital safety net.

Consider including:

• A termination for convenience clause (with or without a notice period)
• Termination rights linked to cost thresholds
• Exit triggers tied to supply disruptions or economic shifts

These provisions allow both parties to part ways without unnecessary legal risk if the contract becomes commercially untenable.

✅ Resilience in Future Contracts

To build long-term protection into your supply chain, consider these drafting best practices:

• Be explicit about tariff responsibilities and cost-sharing
• Choose the right Incoterms® rule
• Include dynamic pricing and renegotiation mechanisms
• Broaden your Force Majeure and hardship clauses to reflect real-world trade risks
• Define clear termination pathways in case of prolonged disruption

🔍 With international trade facing increasing uncertainty, businesses must review existing contracts, renegotiate where needed, and build protective clauses into new deals. The goal? Maintain agility and fairness in the face of rising trade complexity.

📌 Need support navigating tariffs, trade risks, or cross-border contract terms?

Our team at LKOS Law Office is here to help. Whether you're reviewing existing agreements, drafting new international trade contracts, or allocating tariff-related costs—we’ll ensure your contracts are resilient and future-proof.

🔍 Questions about tariffs, supply chain clauses, or international trade law?
Contact Oscari Seppälä for expert legal advice tailored to your business needs.