In April 2025, our International Business Law and Administrative, Regulatory and Government Law practice groups wrote about Which Trade Pill to Swallow: The Red Pill or Blue Pill? In the past few months, several more tariff announcements have come out of Washington, D.C. Most recently, Commerce Secretary Howard Lutnik said that reciprocal tariffs will take effect on August 1. Country-specific rates are still fluctuating ahead of the August 1 deadline. Not only are affected countries subject to change, but affected materials are as well. The President only recently announced impending duties on copper.
The changing landscape has made it difficult for U.S. businesses to both enter new contracts with any level of certainty and adhere to the terms of existing ones. Many businesses are left wondering whether they are bound to the terms of contracts they entered prior to the recent tariffs or whether they can terminate their contracts, reform their contracts, or adjust pricing terms based on the ever-changing and complex tariff matrix.
Can We Get Out of a Contract Based On The New Tariffs?
First, the language contained in the parties’ contract is paramount. Standard contracts may not contain a force majeure clause, but for our international business clients, we always include language that provides various “exit strategies” depending on potential issues that may arise. One of those exit strategies is the force majeure clause, which excuses a party’s performance if unforeseeable circumstances render performance impracticable, if not impossible. Depending on the language drafted, a party may need to show both that the event is covered by the clause, and that the event precludes their performance.
At a minimum, force majeure clauses typically address “acts of God,” or natural disasters such as floods, hurricanes, and earthquakes. However, these clauses vary greatly, with some including a much broader array of potential occurrences than others. Some clauses mention the imposition of governmental limitations, orders, or regulations, or language of similar effect. Many now include specific reference to “pandemics” or “epidemics,” and others may even reference “tariff regulations” that cause an unforeseeable level of monetary impact to occur. Some clauses include a blanket “all other unforeseen circumstances, whether natural or manmade,” or similar language.
The party attempting to be excused from performance typically has the burden of proof in demonstrating that the event is covered by the contract’s force majeure language. That party will have a much easier time satisfying that burden if the imposition of tariffs was expressly contemplated by the contract.
Take Kyocera Corp. v. Hemlock Semiconductor, LLC, for example. In this case, the Michigan Court of Appeals determined that in the absence of explicit language covering economic conditions, a trade war is not encompassed by general force majeure language. The Court reasoned that parties should take changing economic landscapes into consideration before entering into contracts, and protect themselves accordingly via clear contractual language. This decision aligns with the general principle that contracts will be interpreted to reflect the intent of the parties, which is most clearly gleaned from the writing itself.
In Shelter Forest Int’l Acquisition v. COSCO Shipping (USA) Inc., a U.S.-based importer sought to rescind a contract requiring it to ship a requisite amount of building materials through a Chinese shipping company in light of the imposition of tariffs. The Court ruled that the force majeure clause did not excuse performance in part because the importer was aware of the pending tariffs prior to entering the contract, and the importer continued to ship building materials after the tariffs took effect.
While this case has subsequent case history that does not address this issue, Shelter Forest Int’l Acquisition seems to suggest that not only does the language of the written force majeure clause matter, but the timing of the contract and the parties’ actions matter as well.
Where contractual language fails, the contract doctrines of impossibility, impracticability, and frustration of purpose may also help. In Murphy Marine Servs. v. Dole Fresh Fruit Co., the Court ruled that the imposition of tariffs made performance of the contract impracticable, as performance would no longer be profitable to Murphy. There is, however, a Maine Supreme Judicial Court case suggesting the opposite—that impracticability or frustration of purpose are not implicated by diminishing profits. Given that this current reload of the tariffs is sometimes referred to as the largest trade war in modern United States history, it follows that caselaw is underdeveloped in this area.
Another possible mitigation clause we recommend to clients is a price escalation clause, which builds into the contract stages and thresholds where adjustments to the contract automatically can take place. These clauses can provide flexibility to the parties, but can also cause early termination of the contract. This is particularly useful given Langham-Hill Petroleum Inc. v. S. Fuels Co., which provides that the entire purpose of fixed-price contracts is defeated if fluctuating prices enable a party to get out of the contract. Typically, a price escalation clause is meant to deal with the fluctuation of material prices, but it can include labor costs and even impacts from tariffs. These clauses can be complex because of the many variables involved and the defined point at which the clause would be “triggered.” Each of these points during the life of the contract can be an area ripe for dispute. Some price escalation clauses are tied to a price index or have a ceiling, which then allows the parties to determine whether they will continue their commercial relationship.
Given both the changing nature of the tariff landscape and the lack of relevant caselaw, we recommend retaining counsel with both knowledge and experience. Our Administrative, Regulatory, and Government Law and our International Business Law practice groups have helped clients navigate a wide array of tariffs. We stand ready to assist no matter how the “Matrix” gets “reloaded.”
