Understanding How Tariffs Could Impact Your Business

Most United States' businesses should anticipate some impact from the recently announced tariffs on imports into the United States, whether to the prices they pay their suppliers or the prices they charge their customers. Businesses should understand how their current and future contracts address these economic impacts.

Understand the Playing Field

Your existing contracts may dictate who will bear the burden of tariff-related price increases. Now is a good time to review your existing customer and supplier contracts to understand tariff impacts. Below are some contract terms to look out for.

Delivery Terms. Delivery terms determine whether the buyer or seller will be responsible for paying import/export taxes and duties. Typically, contracts reference standardized, default delivery terms established by certain laws or trade associations. For example, "FOB Origin" delivery terms require the buyer to pay whereas "Incoterm Delivery Duty Paid" terms make the seller pay.

Tax Provisions. Your contracts may have a clause assigning who is responsible for paying taxes. In some cases, the party responsible for paying taxes will bear the burden of paying tariff-related price increases.

Price Adjustments. Does the contract allow price adjustments? You may see a clause that pegs price adjustments to a published index, such as the CPI (Consumer Price Index). Economists predict that tariffs will cause many of these indexes to rise, which means the contract price will rise. Also look for contract clauses that permit price changes when costs materially increase or where costs go up due to a change in the law.

Planning for the Future

Given the quickly evolving and uncertain tariff landscape, businesses should adjust language in their standard contracts and bid documents to appropriately allocate tariff risk.

If your business is bidding a new project where costs could be impacted by tariff's consider including the following language: Bidder reserves the right to adjust prices to reflect the impact of tariffs or governmental charges imposed after the proposal date.

Suppliers should consider including price adjustment language in their standard contracts going forward, such as: The parties agree to renegotiate pricing in good faith to reflect the impact tariffs or similar government-imposed charges imposed after contract execution.

Force Majeure. Force Majeure contract provisions may excuse a party if it cannot perform due to events beyond its control. These provisions almost never apply to payment obligations, so it is highly unlikely a buyer can use "force majeure" to avoid paying higher prices caused by tariffs.

At Gaunce Law, we strive to leverage our experience and reputation to help our clients avoid litigation.  Reach out to us if your business has been impacted by tariffs and needs assistance drafting or interpreting your contracts.