Tariffs have long been a tool for governments to generate revenue and protect domestic industries. After a period of gradual tariff reduction since the establishment of the WTO in 1995¹, tariffs are once again a central issue in international trade, following their extensive use by the Trump administration and, in particular, the "Liberation Day" US tariffs of 2 April 2025. This article explores key considerations for businesses entering into cross-border trade arrangements, and the potential impacts on their supply and distribution chains.

What are tariffs? 

Tariffs are a customs duty levied on goods that cross a border. They can be applied on imports or exports but are more commonly imposed on the import of goods (as is the case with recent US tariffs). Tariffs are usually product-specific (e.g. China's tariffs on imports of whisky, brandy etc.) but can be applied on the basis of geography (e.g. 2% on all products from a particular country).

What is the current state of play?

This has changed rapidly since Donald Trump became president on 20 January 2024; he started by threatening tariffs on Canada, China, Colombia and Mexico. The Canada, Colombia and Mexico proposed measures were all swiftly paused but, on 4 February 2025, the US imposed a 10% tariff on all imports of Chinese goods into the US. China swiftly retaliated with measures including a 10% tariff on crude oil and some car imports from the US.

On 4 March 2025, the US imposed a 25% tariff on all imports from Canada and Mexico, and doubled the tariff on Chinese imports to 20%. All three countries have imposed retaliatory measures. On 12 March 2025, the US imposed a 25% tariff on imports of iron and steel from any country – the first measure affecting the UK. A 25% tariff on all cars entering the US came into force on 2 April 2025, also affecting UK exports. 

On 2 April 2025, President Trump announced "Liberation Day" tariffs, with the stated aim of addressing trade imbalances and encouraging foreign companies to relocate production to the US. The US will now impose a 10% tariff on all imports from the UK (excluding cars, iron and steel which are subject to the higher rates) and a 20% tariff on all imports from the EU and differing rates on imports from other countries.² This came into force on 5 April 2025. 

International Trade Law – will it help? 

In theory it should do, but in practice it may not bite. 

The World Trade Organisation's "General Agreement on Tariffs and Trade 1994" (GATT) is the main text representing a long international effort to reduce worldwide tariffs, reduce barriers to trade and prevent discriminatory practices. WTO members (including the US) agree to keep their trade policies within certain limits, under multilaterally agreed rules.

A key principle of GATT is the "Most-Favoured Nation" principle, which (with limited exceptions) requires WTO members (including the US) to extend any tariff advantage granted to one country to all others. 

Charging tariffs on products from a particular member state (and lower or different tariffs on the same products from others) would likely be an example of discrimination between trade partners and a violation of the Most-Favoured Nation principle. As a result of the new tariff regime, China has already started a WTO dispute on this basis. While China likely has good grounds for succeeding at first instance, the WTO Appellate Body is not functioning. This is due to a US decision, dating back to 2017 during the first Trump presidency, to block all appointments of new Appellate Body members, as terms of the existing ones expire. Therefore, if China were to be successful at first instance and the US were to appeal, the proceedings would be left in limbo. We already have an example of how this might play out: 2018 US tariffs on steel and aluminium were challenged at the WTO and found to be incompatible with its rules in a 2022 ruling. In 2023, the US appealed "into the void" to the Appellate Body and the case remains there. 

How do the tariffs apply?

A first step for businesses is to understand the tariffs that apply. Considerations that apply include:

• What is the country of origin of the goods in question? This is often not a straightforward question if the product being imported is the result of multiple materials and components, and assembly or manufacture in different countries. In relation to the US tariffs, the identification of the country of origin can make a material difference to the tariff that applies;
• Might any exceptions apply? There are typically exemptions from the application of tariffs, allowing certain goods to be imported free of tariffs. Ensure your goods are correctly classified to avoid unnecessary tariff exposure;
• Check the product value: as tariffs are imposed as a percentage of value of the goods to be imported, it is important for importers to ensure the correct valuation methodology;
• Negotiation and challenge? What are the avenues for negotiating a bespoke tariff exemption or challenging the validity of a tariff?

Key contractual considerations for cross-border trade arrangements 

For businesses engaged in international trade, tariffs introduce financial and operational risks. Companies must carefully structure contracts to mitigate the impact of tariff-related cost increases and supply chain disruptions. We set out below some key considerations for both importers and exporters.

Exclusivity, force majeure and termination rights

One of the first things any party to an international trade contract should consider is exclusivity and minimum purchase commitments. This, along with the termination provisions of the contract, will in large part determine how easy it will be for the importer to source goods from elsewhere due to the impact of tariffs. If a contract does not stipulate a minimum purchase commitment or appoint the exporter as an exclusive supplier, then the importer will have a greater range of options to mitigate the impact of tariffs. For example, where supply becomes uneconomical, the importer can threaten to suspend further purchases as leverage to convince the exporter to bear some or all of the tariff impact.

Force majeure clauses allow for suspension or termination when unforeseeable events beyond a party's control prevent performance. However, tariffs do not typically qualify as force majeure events, as they do not make performance impossible – only more expensive. Unless the clause explicitly includes tariff-related government action, importers will generally remain bound to contractual terms despite higher costs.

A more viable pathway for termination may lie in financial hardship or material adverse impact clauses. These provisions allow a party to exit the contract if external changes create significant financial hardship or disrupt the commercial balance of the agreement. While not standard in all international supply contracts, their inclusion has become increasingly common in light of trade uncertainty. Importers should seek to expand these clauses to cover tariff-driven cost increases (e.g. increased administration expenses), whereas exporters should push for quantified triggers (e.g. tariff increases exceeding a certain percentage) to avoid premature termination rights.

Cost allocation

In most international trade contracts, the responsibility for tariffs, duties and other import-related costs is determined by the contract's terms and/or by reference to Incoterms 2020. Unless expressly agreed otherwise, the importer typically bears responsibility for these costs. 

The importer should therefore consider whether it can include provisions to allocate responsibility for future tariffs to the exporter, in whole or in part, to address the commercial impact of tariff increases. This might include specific indemnities from the exporter to reimburse tariff-related costs paid by the importer and/or a mechanism to automatically recharge an agreed proportion of the increased tariff costs to the exporter.

Exporters who are long-standing suppliers or rely on a small number of importers for a large portion of their revenue may be more willing to share some of the cost of tariffs to preserve these relationships. 

The exporter, meanwhile, should focus on ensuring that the contract terms are sufficiently clear on the allocation of responsibility for tariffs. Including reference to common Incoterms such as EXW (Ex Works), FCA (Free Carrier), FOB (Free On Board), CIF (Cost, Insurance and Freight) is generally sufficient to place responsibility for tariffs on the importer, subject to any express drafting to the contrary. However, use of the Incoterm DDP (Delivered Duty Paid) would leave the costs of tariffs with the exporter.

Price adjustment clauses

A well-drafted price adjustment mechanism can minimise the risk of contract termination by allowing importers to pass tariff costs to the exporter. Price adjustments may be triggered by general escalation clauses or tariff-specific adjustment mechanisms. Adjustments may occur automatically (e.g. fixed adjustments aligning with tariff changes) or be subject to renegotiation, where the parties must agree on revised pricing. 

• Escalation clause: At the simplest level, an escalation clause can give the importer the right to discuss a price adjustment with the exporter. Typically, such a discussion will have minimal obligations on either side, other than perhaps to discuss a price adjustment "in good faith". Obligations to negotiate are generally unenforceable under English law but can at least allow the importer to exert some contractual and commercial pressure. A well-advised importer should seek the right to terminate an agreement if a satisfactory price adjustment cannot be agreed. On the other hand, exporters will want to ensure that any negotiation does not impose a strict obligation to adjust pricing.
• Tariff-specific adjustment mechanisms: Such provisions are similar to financial hardship clauses except that they will typically include a clear mechanism or formula to adjust the price of goods depending on the financial impact of the tariff on the importer. For instance, such a clause may specify that, where relevant goods are subject to a tariff of 10%, the prices for those same goods will be reduced by 5%, with a sliding scale for other potential tariff values. Exporters will want to ensure that their exposure is limited, which may be by including an absolute cap on the discount or by including a right to terminate rather than accept a price reduction.
• Tariffs as a "Change in Law": Importers can also look to invoke "change in law" provisions to argue that tariff increases qualify as governmental action entitling them to price adjustments or cost-sharing. Whether this argument is effective will depend on contract wording. If the clause references "governmental decrees", "administrative actions" or "import/export restrictions", there may be a strong case that new tariffs fall within its scope. However, exporters can try to resist such an interpretation by narrowly defining "change in law" to expressly exclude any new tariffs, duties or charges on imports.

Additional contractual safeguards against tariff volatility

In addition to the clauses and mechanisms discussed above, importers concerned about tariff-related risks should consider the following contractual strategies:

• Use shorter contract terms and avoid minimum commitments: Entering into shorter fixed-term contracts and/or contracts without minimum purchase commitments can avoid importers being tied into unfavourable pricing structures.
• Stockpiling and inventory reserves: Importers should consider requiring inventory buffers or an ability to require stockpiling if they become aware of imminent new tariffs. This can help mitigate sudden cost increases or supply chain disruptions.
• Alternative sourcing and production relocation: Importers should consider including provisions in their contracts allowing for supply diversification and/or relocation of production to trade-friendly jurisdictions. If an importer does need to include an exclusivity commitment, it should consider building in the ability to adjust the location of manufacture/supply or to find alternative (in-territory) sourcing for a part of the supply in response to tariff changes.

Managing risk in a tariff-driven world is key

In the current global trade environment, tariffs present significant challenges and uncertainties for businesses engaged in cross-border trade and for international supply chains. As tariffs continue to be used as geopolitical tools, it is crucial for both importers and exporters to address these risks proactively through well-structured contractual arrangements. By incorporating clauses such as price adjustment mechanisms, financial hardship provisions and clear cost allocation terms, businesses can better manage the financial and operational impacts of tariff volatility. Additionally, exploring options like shorter contract terms, stockpiling and supply chain diversification can further enhance resilience against sudden tariff changes.

Dentons can provide expert assistance in navigating tariff and supply chain challenges. Do get in touch if you have any questions or need support in relation to these issues. 

1. https://www.wto.org/english/blogs_e/data_blog_e/blog_dta_13apr23_e.htm↩
2. The full list of tariffs applicable can be found here https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal-tariff-to-rectify-trade-practices-that-contribute-to-large-and-persistent-annual-united-states-goods-trade-deficits/. See our LinkedIn update for a detailed breakdown↩