Tariffs and Contract Performance: Can Tariffs be a Force Majeure Event?

If these tariffs threaten your company’s ability to perform under a contract – or if your suppliers/contractors are claiming an inability to perform their contractual duties due to the tariffs – you will want to explore whether performance of the contract was excused by an event of force majeure.

Under “force majeure,” a party may be excused from performing a contract where an event beyond the control of the parties prevents the party from fulfilling its contractual duties. In contracts to be enforced under the law of the United States, there is no implied force majeure, so any such claim must be based on specific language in a contract. Many commercial contracts, including most supply agreements, contain a force majeure clause, but the language used in the contract can vary significantly.

Some force majeure contracts state in broad, non-specific terms that a party’s performance may be excused if such performance was prevented by events out of the party’s reasonable control. However, most force majeure clauses specify certain events such as acts of God, earthquakes, floods, riots, terrorism, wars, etc. Indeed, some standard force majeure clauses may specify that certain tariffs could be considered a force majeure event, while other clauses may specify that a tariff may not constitute a force majeure event. More commonly, however, a party seeking to invoke force majeure based on new tariffs would rely on a catch-all clause excusing performance that was impaired or made impossible by unforeseen events outside of the party’s reasonable control.

The determination of whether the imposition of new tariffs can be considered a force majeure event will depend largely on the specific language of the contract at issue. If the applicable force majeure clause specifically lists things like “governmental actions” as force majeure events, it will be more likely that the failure to perform would be excused.

Even where new tariffs can rightfully be deemed an event of force majeure under the applicable contract, performance is not necessarily excused. Many contracts will require a showing that the party’s performance was rendered impossible (or at least impracticable) due to the force majeure event. If performance is merely made more difficult or more costly, force majeure may not (depending on the contractual language) excuse performance. This is likely to be the largest hurdle for a party seeking to excuse performance under many force majeure clauses. Though tariffs will undoubtedly render performance more expensive, it will be more challenging for a party to establish that the performance has been rendered impossible.

Furthermore, some force majeure clauses apply only to unforeseen events. President Trump has long advocated for the imposition of significant tariffs on goods imported into the United States, so an argument could be made that the new tariffs were foreseeable.

In addition to force majeure clauses, supply contracts should be carefully reviewed to determine whether they specifically allocate the costs of importation. Sophisticated contracts may have detailed shipping clauses, including a designation as to which party is responsible for tariffs and import duties.

If your performance – or the performance of the other party to your contract – may be affected by the tariffs imposed by the United States (or by reciprocal tariffs imposed by other countries), you will need to carefully analyze the specific language of the agreement’s force majeure clause to determine whether the tariffs could excuse performance. Supply contracts should also be carefully reviewed to determine if they specify which party will be responsible for costs of importation and who will bear the burden of tariffs. Finally, if you are currently engaged in contract negotiations, consider whether to add specific force majeure provisions with respect to tariffs, or specifically negotiating shipping terms to allocate the burden of tariffs among the parties.

As has already been the case during the first few months of the second Trump Administration, the applicable tariffs are subject to revision or revocation on short notice. We will continue to monitor this changing landscape. Kerr Russell’s attorneys are experienced in supply agreements, force majeure clauses and international trade, and we are available to help you navigate through this challenging and changing business environment.