What You Need To Do About Tariffs

A tariff clause in a contract will help manage risks related to changes in import duties or trade tariffs. You should specify how tariff increases or decreases will be handled, ensuring price stability and clarity in obligations.

Some key points to consider when drafting a tariff clause:

1. Define Key Terms: Specify what constitutes a tariff change and how it impacts pricing.
2. Risk Allocation: Defines which party bears the cost of tariff changes.
3. Price Adjustments: Allows for contract price modifications if tariffs change.
4. Notification Requirements: Designate a process for informing the other party about tariff changes.
5. Force Majeure Considerations: Some contracts may treat sudden tariff hikes as an event that excuses performance.
6. Negotiation Flexibility: Helps businesses renegotiate terms if tariffs significantly impact costs.

Here are a few examples of different tariff clauses that businesses use to manage risks related to trade tariffs:

1. Price Adjustment Clause – Allows for renegotiation of contract price if tariffs increase beyond a certain threshold. Example:  “If customs duties or trade barriers increase by X% or more, the affected party shall notify the other party within 30 days. Both parties will engage in good-faith negotiations for 60 days to agree on an adjusted price.”
2. Cost-Sharing Clause – Provides that tariff-related cost increases are split between the buyer and seller. Example:  “If tariffs increase by X% or more, the additional costs shall be shared equally between the buyer and seller.”
3. Force Majeure Clause – Treats sudden tariff hikes as an event that excuses performance. Example:  “If a government-imposed tariff renders performance commercially impractical, the affected party may suspend or terminate the contract without liability.”
4. Termination Clause – Allows either party to exit the contract if tariffs significantly impact costs. Example:  “If tariffs increase beyond X%, either party may terminate the contract upon 30 days’ written notice, without liability for damages.”

Review your commercial contracts immediately. Make sure that all contracts reflect your tariff intentions.

Call us if we can help.

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