President Trump has threatened to impose a 25% tariff on products from Canada and Mexico and a 10% tariff on Chinese products beginning February 1, 2025.

Such broad tariffs on goods from these three countries may draw retaliatory tariffs on United States goods and incite new “trade wars” leading to significant and unforeseen cost increases for importers and exporters alike and the potential disruption of international supply chains. Although those in the midst of negotiating contracts today have the opportunity to allocate the risk of rising tariffs explicitly, those with standing contracts may be left seeking protection in more general clauses, such as a force majeure clause.

Force majeure is a French phrase that translates literally as superior force. Force majeure does not arise from common law, unlike the similar doctrines of impracticability or impossibility. Rather, it is a creation of contract where the contracting parties define certain events that, upon their occurrence, relieve a party from liability for non-performance or delayed performance caused by the specified event. Force majeure clauses are narrowly construed and excuse nonperformance only where the event is specifically identified in the parties’ contract.¹

Traditionally, the risk of increased costs because of tariffs and government action are allocated by the parties’ contract and do not constitute force majeure. Parties engaged in international trade typically specify delivery terms within their contract. For instance, the responsibility to pay duties generally is set forth in the terms of the contract. In many international trade contracts, the delivery Incoterm will control.² The Incoterm rules often require the seller to deliver the goods to the buyer with any and all duties paid. Other delivery terms may require the buyer to clear goods through customs and pay any required duties.³

Courts generally will not reallocate the risks established by the parties’ contract, regardless of whether the terms create economic hardship on one of the contracting parties.⁴ As articulated by the Seventh Circuit Court of Appeals, the rationale underlying this interpretation is that a force majeure provision is not “intended to buffer a party against the normal risks of a contract” because “[a] force majeure clause interpreted to excuse the [party] from the consequences of the risk [they] expressly assumed would nullify a central term of the contract.”⁵ By extension, courts generally have refused to enforce force majeure provisions within a contract where government action outside of the parties’ control results in increased cost of performance.⁶ Such government action includes tariffs imposed by the United States and foreign countries.⁷ The logic underlying these decisions mirrors that of the Seventh Circuit, that force majeure “applies to objective events which directly affect the parties' ability to perform the contract in question, not the ability to make a profit.”⁸ Accordingly, unless the agreement provides otherwise, increased cost of performance, including increases resulting from governmental action, generally does not constitute force majeure. 

So, for parties in the midst of contract negotiations, it is advisable that parties expressly protect themselves from potential price increases stemming from uncontrollable factors—tariffs, trade wars, or other government action—at the time of contracting by including cost adjustment terms in their contracts. For example, a party’s contract may provide that if the cost of a specific input increases over a threshold amount during the length of the contract, the affected party may charge an increased price or terminate the contract.

Although traditional force majeure language may not provide an excuse to performance for rising tariffs, many parties have re-examined and increased the scope of force majeure clause previously considered to be boilerplate. In the wake of trade disputes during President Trump’s first term and the COVID-19 pandemic and its corresponding supply chain disruptions, many parties expanded the definition of force majeure in their agreements to include economic and other disruptions.

Courts are more likely to enforce force majeure provisions where the contract expressly sets forth the specific conditions—i.e., changes in market prices or the costs of materials and raw materials or new or increased tariffs, duties or related costs—that constitute force majeure.⁹ Although case law is sparse, in at least one case, the U.S. Bankruptcy Court for the Southern District of New York enforced a parties’ agreement that specifically provided for “change to economic conditions” as a force majeure event. The court explained that although financial difficulty does not generally excuse the defaulting party’s performance, the parties may provide otherwise: “while courts will not presume that a change in economic conditions constitutes an excuse for nonperformance, this does not preclude the parties from negotiating for such an excuse.”¹⁰ Because the parties incorporated specific language in their agreement regarding changing economic conditions, the court found that the parties intended for a broader concept of force majeure that was satisfied because the changing economic conditions excusing performance were beyond the control of the defaulting party.¹¹

Parties should be aware that increased cost of performance stemming from risks such as increased tariffs are risks not typically addressed in traditional force majeure clauses and that, absent a provision to the contrary, courts have been reluctant to expand those clauses to cover economic conditions and increased costs.¹² Nevertheless, parties are free to allocate risks as they see fit by doing so explicitly in their agreements. As a result of COVID and the subsequent supply chain disruptions, many parties began allocating such risks and broadening their force majeure clauses to encompass such events. A careful review of your contract terms should be undertaken to determine whether your current language is sufficient or should be revised.

1. See, e.g., Kyocera Corp. v. Hemlock Semiconductor, LLC, 886 N.W.2d 445, 451 (Mich. Ct. App. 2015) (collecting cases).↩
2. Incoterms are published by the International Chamber of Commerce and are a standard set of rules used in international and domestic contracts for the delivery of goods. See Incoterms Rules, International Chamber of Commerce (last visited Jan. 23, 2025) available at https://iccwbo.org/business-solutions/incoterms-rules/#:~:text=First%20published%20by%20ICC%20in,sale%20and%20purchase%20of%20goods.↩
3. For example, the terms Freight on Board (FOB) and Cost, Insurance, and Freight (CIF) are delivery terms that shift the obligation for duties from the seller to the buyer.↩
4. See Kyocera Corp., 886 N.W.2d at 453 ("[A]llowing a force-majeure clause to provide a party with relief from an unprofitable market downturn would defeat the purpose of a take-or-pay contract . . . The very reason for entering the take-or-pay contracts [is] to insure payment to the producer in the event of substantial change in the marketplace.”); see also Shelter Forest Int'l Acquisition, Inc. v. COSCO Shipping (USA) Inc., 475 F.Supp.3d 1171, 1187 (D. Or. 2020).↩
5. N. Indiana Pub. Serv. Co. v. Carbon Cnty. Coal Co., 799 F.2d 265, 275 (7th Cir. 1986).↩
6. Id.; see also Langham-Hill Petroleum Inc. v. S. Fuels Co., 813 F.2d 1327 (4th Cir. 1987) (“If fixed-price contracts can be avoided due to fluctuations in price, then the entire purpose of fixed-price contracts, which is to protect both the buyer and the seller from the risks of the market, is defeated.”); United Sugars Corp. v. U.S. Sugar Co., Inc., CIV. 13-1485 DSD/BRT, 2015 WL 1529861 (D. Minn. Apr. 2, 2015); Hong Kong Islands Line Am. S.A. v. Distribution Servs. Ltd.,795 F.Supp. 983 (C.D. Cal. 1991), aff'd, 963 F.2d 378 (9th Cir. 1992); Coker Int'l, Inc. v. Burlington Indus., Inc., 747 F.Supp. 1168 (D.S.C. 1990), aff'd, 935 F.2d 267 (4th Cir. 1991). In contrast, courts suggest that where the government sanctions prohibit a party outright from doing business, and not merely increase the cost of doing so, force majeure based on government action may apply. See, e.g., Coker Int'l, Inc., 747 F.Supp. at 1170 (distinguishing between increased cost of performance and impossible performance).↩
7. Kyocera Corp., 886 N.W.2d at 453 (holding that tariffs imposed as part of “trade war” in the solar industry market did not constitute force majeure because tariffs merely caused performance by plaintiff to "become unprofitable or unsustainable", a risk assumed by plaintiff per the parties’ contract); Shelter Forest Int'l Acquisition, Inc., 475 F.Supp.3d at 1188 (holding that tariffs imposed as part of ongoing U.S. – China trade war did not constitute force majeure event excusing performance because the parties explicitly provided in agreement that "changing markets" would not constitute force majeure).↩
8. Coker Int'l, Inc., 747 F.Supp. at 1170.↩
9. Compare In re Old Carco LLC, 452 B.R. 100, 119–20 (Bankr. S.D.N.Y. 2011) (enforcing force majeure clause for “changing economic conditions” because “[e]xpress inclusion of the clause change to economic conditions as an excusing event in the 2000 Agreement evidences the intention of the Parties to use a broader force majeure concept”) with OWBR LLC v. Clear Channel Commc'ns, Inc., 266 F.Supp.2d 1214, 1224 (D. Haw. 2003) (declining to enforce force majeure because of changing economic conditions because "[t]he Force Majeure clause does not contain language that excuses performance on the basis of poor economic conditions”).↩
10. In re Old Carco LLC, 452 B.R. at 119 (emphasis added).↩
11. Id. at 120.↩
12. Kyocera Corp., 886 N.W.2d at 453; Shelter Forest Int'l Acquisition, Inc., 475 F.Supp.3d at 1187.↩