Overview
Since taking office, President Trump has pursued an aggressive trade policy and announced a number of trade actions that will have a profound impact on global commerce. These have included tariffs on imports from Canada, China and Mexico (with the tariffs on Canada and Mexico later being suspended), expanded tariffs on steel and aluminum imports, and a proposal to seek reciprocal tariffs on U.S. trading partners. The scope and speed at which the new administration is moving means affected companies must remain apprised of their legal rights to mitigate financial losses. In light of these actions, and potential reciprocal actions by impacted countries, parties should carefully review contractual language and assess both vulnerabilities to legal action as well as avenues for relief under the contract and applicable law. We discuss possible recourse parties may have both in arbitration and U.S. litigation below.
Force Majeure Clauses
Significant changes in trade regulations—including tariffs—could trigger a force majeure clause if they are contemplated by the parties and/or are sufficiently severe. Force majeure clauses permit parties to suspend, delay, or otherwise excuse performance in the event of unforeseen contingences. These provisions usually enumerate certain triggering events, such as acts of war, labor strikes, natural disasters, or epidemics, and might contain a "catchall" provision designed to capture other contingencies.
A force majeure clause may excuse performance if tariffs are included as a contingency contemplated by the parties. This is a high burden to meet, however. For example, courts have enforced contractual obligations where COVID-19 caused steel prices to rise unexpectedly because the parties' force majeure clause excluded price increases as a contingency.[1] Whether a force majeure clause would govern a sudden increase in tariffs will turn primarily on whether a court believes the parties contemplated the clause covering increased tariffs or whether it is excluded based on an explicit clause requiring payment of duties by a party. While the clause likely does not need to specifically use the term "tariff", a court will likely rely on a variety of factors to ascertain the parties' intentions including: first and foremost, the language of the contract, the parties’ practices and prior course of dealing, and judicial decisions considering similar language.
Frustration of Purpose, Impossibility, and Commercial Impracticability
Although distinct doctrines, both frustration of purpose and impossibility excuse performance in the event of an unforeseen event that destroys the purpose underlying the contract. As its name implies, commercial impracticability is a similar concept, which carries a slightly lesser burden. It is codified in the Uniform Commercial Code (UCC), which governs contracts for the sale and purchase of goods. To obtain relief, a party must show (i) an unforeseen contingency occurred that renders performance impracticable, and (ii) the non-occurrence of the contingency was a basic assumption of the contract. For contracts not subject to the UCC, these avenues for relief may still be available under the common law of a particular state.
U.S. courts are often hesitant to allow parties to avoid contractual obligations under these doctrines where the party seeking to excuse performance does so based on higher costs or a loss in profitability.[2] For example, in a case involving tariffs, a federal court did not excuse performance under a commercial contract because the parties were aware of impending tariff increases when they entered into the contract and didn’t account for those increases in the force majeure provision.[3] Courts have also held that a sudden industry-wide increase in the costs of raw materials does not render performance impracticable or impossible.[4] Similarly, the UCC states that a market collapse is not a justification to excuse performance "for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover."[5] A "severe shortage of supplies," however, due to unforeseen contingencies "such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like" may be sufficient.[6] Sharp increases in tariffs are unlikely to fall into one of these buckets.
In cases evaluating other government actions, like sanctions, courts have been hesitant to excuse performance. For example, courts have not excused performance in cases where sanctions prevented companies from accessing leased property in the United States because sanctions were a foreseeable risk.[7] In a Second Circuit case involving U.S. economic sanctions, the Court ruled that a debt repayment was not objectively impossible despite the party not being able to obtain a license required by the sanctions to make the payments.[8]
Absent a contractual provision allocating the risk of tariffs or other compounding factors, it is unlikely a contracting party could excuse performance solely because of tariffs. But, again, the application of these doctrines is often context-specific. Parties’ facing commercially impractical circumstances or concerned that their counterparty will assert these doctrines should consider evaluating their options with experienced counsel.
"Change in Law" Clauses
Suppliers may have "change in law" clauses in their contracts that could be triggered by increased tariffs that affect them. "Change in law" clauses are typically found in construction contracts and supply contracts that pertain to construction projects, but not exclusively.
Unlike the doctrines discussed above, these clauses do not typically excuse performance but entitle the supplier or contractor to additional costs or time in order to enable the affected party to complete its agreed work scope. For example, a contract to supply steel for a construction project may include such change in law clauses. Depending on the language of the clause, the steel supplier may be able to increase its contract price in the event of tariffs. As an example, the change of clause might state,"The contract price shall be adjusted to take account of any increase or decrease in cost resulting from a change in the laws of the country including the enactment, promulgation, amendment, issuance, introduction of laws, rules or regulations, governmental orders, or in the judicial or official governmental interpretation of such laws, made after the effective date." As different change in law clauses include varying requirements and consequences (e.g., instead of providing for an adjustment of contract price, the only consequence could be negotiations), it will be essential for an affected party to closely analyze the change in law clause language and its interpretation under the relevant governing law.
Change in law clauses were relied on by suppliers during the COVID-19 pandemic as countries imposed various restrictions and limitations within their jurisdictions that seriously affected suppliers and contractors in terms of cost and time. Suppliers and contractors could rely on such clauses to demand variation orders to increase their contract price. In the case of restrictions or limitations arising from COVID-19, which were largely access-related, the difficulty arose due to proving the impact of such changes of law on the contract price. In contrast, executive orders increasing tariffs are much clearer. Specific known percentages come into effect. In this regard, importers of record that bear the burden of the increased tariffs could rely on change in law clauses if one exists with their end users. This can be particularly useful to exporters who are also the importers of record that bear the cost of the tariffs.
"Change in Circumstances" Clauses
A change in circumstances clause (or hardship clause) goes one step further than change in law clauses and can allow for outright termination of the contract if the hardship is severe and the performance of the contract become too onerous. These clauses were likewise relied on during the COVID-19 pandemic by parties facing undue hardship in performance. In the context of tariffs, an importer of record (who can be the exporter) can rely on a change in circumstances clause with its end user to renegotiate its contract to compensate for the increased costs caused by the tariffs. If negotiations fail, depending on the language of the contract, termination of the contract can be an option.
Ex-Parte Applications
If tariffs suddenly force a party into an untenable financial situation, parties are not without options. For example, if an importer suffers financial losses and dissipates assets as a result of the tariffs and their financial consequences, the exporter could apply for ex parte relief on an urgent basis. These mechanisms could result in a preliminary injunction or temporary restraining order suspending performance under the agreement pending the outcome of the litigation. In the U.S., an applicant would have to submit evidence that it will suffer "irreparable harm" if the requested relief is not granted meaning that it cannot be adequately compensated or remedied by a monetary award or damages that may be awarded at a later date.
In international arbitration, ex parte applications are rare primarily due to the consensual nature of arbitration, however, the Singapore International Arbitration Centre (SIAC) recently released its new rules in 2025 which expanded the authority of the emergency arbitrator to include the issuance of a Protective Preliminary Order (PPO). Under Schedule 1 of the SIAC Rules 2025, an applicant can seek an ex-parte PPO against a party and receive a protective order within 24 hours of the appointment of the emergency arbitrator. The applicant would have to make a "request for the appointment of an emergency arbitrator to consider a request for an interim measure together with an application for a preliminary order directing a party not to frustrate the purpose of the emergency interim or conservatory measure requested."[9] Ex-parte relief is also available in the Swiss Arbitration Court (see Swiss Rules of International Arbitration, Art. 29(3), 43) and the Arbitrators' and Mediators' Institute of New Zealand (see AMINZ Emergency Arbitration Protocol, Art. 1.2, 3.2).
Takeaways
In this rapidly changing trade ecosystem, companies should take care to take the following steps:
- Closely monitor President Trump’s executive orders and other proclamations issuing tariffs to determine if your contract will be affected;[10]
- Closely monitor President Trump’s statements concerning future tariffs and trade restrictions to ensure future contracts adequately allocate the risks of forthcoming policy changes;
- Undergo a review of contractual language and determine how tariffs could impact existing and future contractual obligations;
- Determine whether there are any exclusionary processes or other processes that could be utilized to minimize the impact of the tariffs;
- Assess what avenues for relief may be available both in the contract and relevant applicable law; and
- Proactively engage with contractual counterparts regarding tariffs.
The Steptoe team has considerable experience in these areas and is always available to answer questions or otherwise assist in any of these steps.
[1] BAE Indus., Inc. v. Agrati - Medina, LLC, No. CV 22-12134, 2022 WL 4372923, at *5 (E.D. Mich. Sept. 21, 2022).
[2] Gander Mountain Co. v. Islip U-Slip LLC, 923 F. Supp. 2d 351, 359 (N.D.N.Y. 2013), aff’d, 561 F. App'x 48 (2d Cir. 2014).
[3] See, e.g., Shelter Forest Int’l Acquisition, Inc. v. COSCO Shipping (USA) Inc., 475 F. Supp. 3d 1171 (D. Or. 2020).
[4] Chainworks, Inc. v. Webco Indus., Inc., No. 1:05-CV-135, 2006 WL 461251, at *9 (W.D. Mich. Feb. 24, 2006).
[5] Unif. Commercial Code § 2-615 cmt. 4.
[6] Id.
[7] Sage Realty Corp. v. Jugobanka, 1998 WL 702272 (S.D.N.Y. Oct. 8, 1998); Hungarian People’s Republic v. Cecil Associates, 127 F.Supp. 361, 363 (1955).
[8] Siemens Energy, Inc. v. Petroleos de Venezuela, S.A., 82 F.4th 144, 153 (2d Cir. 2023).
[9] Schedule 1, Paragraph 25 of the SIAC Rules 2025.
[10] Steptoe LLP has recently launched an Executive Order Tracker: https://steptoe.sharepoint.com/sites/Marketing/SitePages/New-Executive-Order-Tracker.aspx.
