Rethinking contractual safeguards in an era of universal tariffs
Introduction
Recent developments in US tariffs have added a significant layer of volatility to global trade. These measures have affected pricing certainty, supply chain planning, and risk allocation across the globe. While the full impact of the tariffs remains to be seen, businesses should revisit the way their cross-border and international contracts are structured and managed.
Innovative and pragmatic solutions are required to address the challenges brought by the tariffs, and the increased number of divergent situations that companies may find themselves operating in within the lifespan of an agreement. This article offers a few proposals for consideration.
Background
Since early 2025, the United States of America (the “US”) has launched a series of tariff measures under the Trump administration targeting a wide range of goods and trading partners. The new tariff landscape has introduced significant complexity for cross-border commercial arrangements, and compelled businesses to reassess how such developments impact pricing, risk allocation, and contractual performance. A timeline of key executive orders and proclamations issued by the White House is set out in Appendix A.
Impact on ASEAN, China, Japan, South Korea, Taiwan and India
The US tariff measures have had significant impacts across Asia. Pursuant to an executive order dated 31 July 2025, new reciprocal tariff rates have been introduced for foreign trading partners who have agreed to, or are close to concluding trade and security agreements with the US. Countries not listed in the executive order remain subject to the 10% universal ad valorem tariff initially imposed under an earlier executive order dated 5 April 2025. No formal retaliatory action has been taken by most of Asia’s governments. Current country-specific tariff rates are set out in Appendix B.
Dealing with uncertainty – redesigning contractual arrangements
The unpredictable and shifting tariff environment has led to uncertainty for commercial actors, particularly those with long-term commitments. Carefully designed contractual arrangements can help businesses navigate the challenges of the global trade landscape by mitigating financial risks, and avoiding unnecessary disputes. Some considerations are set out below.
Cost allocation and dynamic pricing protocols
Contracts may expressly allocate responsibility for tariff and other import-related costs.
Businesses may also wish to consider introducing mechanisms to automatically adjust contract prices or minimum volume commitments based on prevailing tariff rates at relevant points in time, for example, at the point of importation.
Protections against non-performance
Tariffs may affect the commencement, termination or time of performance of contractual obligations.
Businesses may consider if tariff-related events – such as the expiry of a tariff suspension period or conclusion of trade talks, or a change in rates beyond a certain threshold – should:
form conditions precedent to performance;
constitute a termination event, or give rise to an obligation to renegotiate in good faith; or
give parties the right to suspend or delay performance for a certain period.
Compliance and alternative sourcing responsibilities
To address compliance risks, US importers may require suppliers to provide warranties and indemnities relating to origin and classification of goods.
Contractual provisions may also require or allow for alternative sourcing arrangements. For instance, suppliers could be given the ability to relocate manufacturing or logistics to other jurisdictions if tariff-driven delays or costs become commercially unworkable.
Dispute resolution and jurisdiction
As tariffs necessarily raise cross-border matters, contracts should contain well-defined dispute resolution and governing law provisions. In certain cases, separate dispute resolution mechanisms may be proposed to address specific issues such as price changes.
Conclusion
The US tariff regime continues to evolve amidst frequent policy changes, and ongoing trade talks and courtroom challenges. Comprehensive documentation and early consultation are crucial for businesses seeking to manage legal and economic risks and obligations.
If you require expert assistance in navigating these challenges, please get in touch.
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