Recent shifts in international tariff policies have created significant uncertainty for US importers. As a buyer, revisiting your supply contracts now can help safeguard your business from unexpected costs and disruptions. This article outlines practical contract adjustments to consider in today’s dynamic trade environment.

1. Price Adjustment Clauses

Consider adding:

• Tariff-specific price adjustment provisions
• Formulas that automatically adjust pricing when tariffs change
• Caps on how much price can increase due to tariff change
• Limits on adjustment frequency

It is essential to review the pricing formulas regularly and to ensure they remain fair and relevant as market conditions evolve. We suggest that contracting parties include a mutual review clause (e.g., “If tariffs affecting the Products increase or decrease by more than 10% during any 6 month period, the parties shall meet within 5 business days to negotiate in good faith an equitable adjustment to pricing.”)

2. Flexible Payment Terms

Options to explore:

• Extended payment windows when tariffs increase (e.g., net 60 instead of net 30)
• Tariff-triggered payment deferrals (e.g., “If a new tariff is imposed exceeding 10% on products covered by this agreement, buyer may defer 50% of the payment for 45 days without penalty.”)
• Percentage-based triggers (e.g., “If tariffs rise by more than 10%...”)
• ACH Debit payments with US Customs, which can provide up to 10 extra days to pay duties on certain goods

3. Strategic Incoterm

Incoterms (International Commercial Terms) define who handles shipping, insurance, customs, and tariffs in international transactions. Review your current terms to ensure appropriate risk allocation:

• Current EXW (Ex Works)? Consider negotiating toward DDP (Delivery Duty Paid), which shifts tariff responsibility to the seller
• Can't secure DDP? Look at balanced alternatives like DAP (Delivered at Place), CPT (Carriage Paid To), or CFR (Cost and Freight)
• Work with customs brokers to model different scenarios and optimize entry points

4. Enhanced Force Majeure Provisions

Standard force majeure clauses often don’t adequately address tariff changes. Consider strengthening yours by:

• Explicitly listing “significant tariff increases” as qualifying events
• Define what constitutes “significant” (e.g., increases exceeding 50%)
• Including graduated response options based on severity of the tariff increase percentage, beyond simple termination
• Documenting financial impacts and mitigation efforts

5. Tariff-Specific Dispute Resolution Framework

Create a structured process for addressing tariff disputes before they escalate. Here is a sample of a three-level escalation framework:

1. Operational level (5 days): Contract managers meet to exchange documentation and propose initial solutions
2. Department heads (7 days): Mid-level managers with broader authority review and develop equitable solutions
3. Executive leadership (7 days): Senior executives attempt final resolution before external processes

If internal resolution fails, proceed to mediation before considering arbitration or litigation.

6. Clear Termination Rights

While preserving business relationships is ideal, sometimes termination becomes necessary:

• Define specific tariff-related termination triggers with precise thresholds
• Document all efforts to negotiate solutions before exercising termination rights
• Follow contractual notice requirements carefully

Taking Action

In today’s volatile trade environment, proactive contract management is essential for maintaining profitability. By incorporating these targeted provisions into your supply agreement, you can create a more flexible framework that equitably distributes unexpected tariff burdens while protecting your bottom line. The companies that thrive amid uncertainty will be those that combine careful contractual safeguards with open communication, allowing both parties to share unexpected burdens while exercising contractual rights only when truly necessary to protect core business interests.