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1. Background
The recent announcement by the Trump administration of sweeping new tariffs on imports from nearly all countries has shocked the global trade community. In response, China has imposed counter-tariffs on U.S. goods. This rapid escalation of trade barriers is already reshaping global supply chains, raising costs, and threatening the stability of international commercial relationships.
As these new measures begin to take effect, businesses across nearly all industries—whether directly involved in international trade or not—may soon face significant disruptions. For companies with existing cross-border agreements or global supplier relationships, a pressing question arises: Do such sudden and substantial tariffs or trade wars justify termination of a contract, suspension of performance, or adjustment of contract pricing?
2. Key Question
When government-imposed tariffs or trade restrictions suddenly and dramatically increase the cost of fulfilling contractual obligations, what are the legal options available? Can a business legally terminate a contract or refuse performance under such circumstances?
Alternatively, is there a legal basis to renegotiate the contract price?
And most importantly, does a trade war or a sudden tariff hike count as a force majeure event—one that could excuse non-performance or trigger renegotiation?
3. What Is Force Majeure? Do Sudden Tariffs Constitute a “Force Majeure” Event?
Force majeure refers to unforeseeable events beyond a party’s control that prevent contractual performance. Most international contracts include a force majeure clause to excuse one or both parties from their obligations when such extraordinary events arise. But whether sudden, high tariffs qualify as force majeure depends on two key factors:
1. The wording of the clause itself, and
2. The governing law of the contract.
Key Questions to Consider:
- Is “government action,” “trade restrictions,” or similar language explicitly included in the clause?
- Does the clause require the event to make performance impossible, illegal, or merely commercially impracticable?
Tariffs may be covered if the clause includes broad phrasing such as:
- “Acts of government”
- “Import/export restrictions”
- “Trade embargoes”
- “Any event beyond the reasonable control of the parties”
However, if the clause strictly requires impossibility, a mere cost increase—even a substantial one—may not qualify unless the new tariff renders performance entirely unworkable or illegal.
Country-by-Country Analysis
Do Sudden High Tariffs Constitute a “Force Majeure” Event and Therefore Justify Termination of Contract?
Canada – Unlikely
• Legal Basis: Common law.
• Application: Courts rarely accept economic hardship. Tariffs must be specifically included and create objective impossibility.
Hong Kong – Unlikely
• Legal Basis: Common law.
• Application: Force majeure is not implied. Courts interpret strictly. Tariffs must be specifically listed in the contract.
Malaysia – Unlikely
• Legal Basis: Common law; force majeure must be contractual.
• Application: Courts strictly interpret such clauses. Tariffs must be explicitly stated to be covered.
Philippines – Unlikely
• Legal Basis: Civil Code Article 1174
• Application: The law lays the foundation for force majeure but requires the event to make performance impossible, not just costly. Courts do not accept economic hardship or cost increases alone.
South Africa – Unlikely
• Legal Basis: Common law; force majeure must be in the contract.
• Application: High tariffs unlikely to qualify unless explicitly listed.
Thailand – Unlikely
• Legal Basis: Thai Civil and Commercial Code, Sections 205 and 219
• Application: Force majeure must make performance unpreventable even with utmost care. A force majeure event must create true impossibility, not just hardship. Tariffs causing cost spikes do not qualify.
United Kingdom – Unlikely
• Legal Basis: Common law; force majeure must be explicitly included.
• Application: Courts apply a high bar for the doctrine of frustration. Economic hardship, including tariff increases, does not excuse performance unless performance becomes radically different or impossible.
United States – Unlikely
• Legal Basis: UCC §2-615 allows non-performance due to “commercial impracticability.”
• Application: U.S. courts are conservative. A high tariff must create an extreme and unforeseeable burden. Mere cost increases, even up to 100%, are rarely sufficient.
Brazil – Maybe
• Legal Basis: Article 393 of the Brazilian Civil Code excuses liability for damages resulting from force majeure or fortuitous events. Additionally, Articles 317, 478–480 allow for price revision or contract termination due to excessive hardship caused by unforeseeable and extraordinary events.
• Application: Brazilian courts accept government actions, such as sudden high tariffs, as potential force majeure events if they create an excessive burden or render performance impossible. The law explicitly supports contract revision or termination in such cases, particularly under hardship provisions.
China – Maybe
• Legal Basis: Article 590 of the Civil Code defines force majeure as an event that is unforeseeable, unavoidable, and insurmountable.
• Application: Chinese courts strictly interpret force majeure. According to AllBright Law and Tiantong Law analyses, economic hardship—including cost increases due to tariffs—does not qualify unless performance becomes objectively impossible. Force majeure may be accepted only if the new tariffs completely prevent performance and are clearly unforeseeable. Even then, timely notice and detailed evidence are required.
Egypt – Maybe
• Legal Basis: Civil Code Art. 165 and 147.
• Application: Force majeure requires impossibility. Courts may accept high tariffs only if performance becomes unfeasible.
France – Maybe
• Legal Basis: Civil Code Art. 1218.
• Application: Performance must be rendered objectively impossible. Economic hardship does not qualify. High tariffs might be accepted if they prevent delivery or execution.
Germany – Maybe
• Legal Basis: Civil Code (BGB §275 and §313).
• Application: While force majeure requires impossibility, Germany also allows contract adjustment under Wegfall der Geschäftsgrundlage (frustration of purpose) if tariffs fundamentally disrupt the contractual balance.
India – Maybe
• Legal Basis: Indian Contract Act, 1872 (Sections 32 and 56).
• Application: Force majeure must render performance impossible, not just expensive. A tariff must fundamentally alter the nature of the agreement to qualify.
Indonesia – Maybe
• Legal Basis: Civil Code Articles 1244 and 1245.
• Application: Economic hardship is generally insufficient. High tariffs could be valid only if they directly prevent performance.
Saudi Arabia – Maybe
• Legal Basis: Civil Transactions Law, Articles 94 and 95.
• Application: Saudi law now formally recognizes both force majeure and hardship-style adjustment. Courts may accept tariff-based hardship if it causes substantial or legal impossibility.
Taiwan – Maybe
• Legal Basis: Civil Code Articles 227–228.
• Application: Courts may allow force majeure for unforeseen government action, but cost-related hardship requires actual impossibility.
Vietnam – Maybe
• Legal Basis: Civil Code Art. 351 and 420.
• Application: Force majeure must be unforeseeable, unavoidable, and insurmountable. Tariffs may qualify only if they make performance truly impossible.
4. Sample Force Majeure and Hardship Clause
As shown in the previous section, whether a sudden high tariff qualifies as force majeure depends heavily on the specific contract language and governing law. To reduce uncertainty and strengthen their legal position, businesses—especially small and medium-sized enterprises (SMEs) involved in international supply chains—should proactively include well-drafted force majeure and hardship clauses in their cross-border agreements.
Below is a sample clause that you can adapt for your own industry or contract type. It includes language specifically addressing tariff-related risks and introduces a structured way to renegotiate or exit the contract if performance becomes overly burdensome.
⚠️ Note for Small Business Owners:
This clause is designed to cover both traditional force majeure events (like natural disasters or war) and economic disruptions such as sudden tariff increases. If you're in manufacturing, e-commerce, or tech (e.g., licensing software across borders), this clause can be tailored with specific percentages, durations, or product references based on your situation. Always consult with a legal professional to customize the clause for your jurisdiction and business model.
Sample Force Majeure and Hardship Clause (with Tariff-Specific Language)
Force Majeure and Hardship
1. Force Majeure Events
Neither Party shall be liable for any failure or delay in performance of its obligations under this Agreement (excluding payment obligations) to the extent such failure or delay is caused by an event beyond the reasonable control of the affected Party, including but not limited to:
- natural disasters, epidemics, wars, civil unrest;
- acts of any governmental or regulatory authority;
- embargoes, export or import restrictions, or prohibitions;
- sudden or extraordinary increases in tariffs, duties, or taxes imposed by government authorities in excess of [50]%;
- or any other event that renders performance impossible or unlawful (each a “Force Majeure Event”).
2. Notice and Mitigation
The affected Party shall notify the other Party in writing within [10] business days of the occurrence of a Force Majeure Event, providing reasonable particulars of the event, its anticipated duration, and its expected impact on performance. The affected Party shall use all reasonable efforts to mitigate the impact.
3. Prolonged Force Majeure
If the Force Majeure Event continues for more than [30 or 60] consecutive days and substantially frustrates the performance of the Agreement, either Party may terminate this Agreement upon [10] days’ written notice, without liability.
4. Hardship and Price Adjustment
If, due to any governmental action—including the imposition or increase of tariffs, duties, taxes, or other regulatory measures—the performance of a Party’s obligations under this Agreement becomes excessively burdensome (e.g., where the cost of performance increases by more than [50]%), the affected Party may invoke this hardship clause.
In such case:
- The affected Party may request a renegotiation of the affected terms of the Agreement;
- The Parties shall engage in good faith negotiations for a period of [15 days] from the date of such request;
- If no agreement is reached within that period, the affected Party may suspend performance of the impacted obligations or terminate the Agreement with [15 days’ written notice].
Practical Tip:
Consider adjusting the threshold (e.g., 50%) based on the price volatility in your industry. For high-margin industries like software licensing, a lower threshold might be appropriate. For manufacturing or logistics-heavy contracts, you might want to allow for higher flexibility or a longer negotiation window.
5. Legal Ground for Price Adjustment: What If Force Majeure Doesn’t Apply?
As seen in the last section, well-drafted force majeure and hardship clauses can help businesses deal with the impact of sudden, high tariffs. But what happens if the contract has no such clause, or the force majeure clause doesn’t cover tariffs?
Even in these situations, some jurisdictions—especially civil law countries—offer legal grounds for contract price adjustment or renegotiation. These are typically based on doctrines like hardship, change of circumstances, or economic equilibrium, which may allow a court or arbitrator to revise the contract when unforeseen events create an excessive burden on one party.
By contrast, most common law jurisdictions take a stricter view: performance is expected unless the contract explicitly provides for price revision.
Country-by-Country Analysis
Countries Likely to Allow Price Adjustment or Renegotiation (Hardship Doctrine Applies)
Countries Less Likely to Allow Price Adjustment Without a Clause
Practical Contract Drafting Tip
In high-risk sectors such as manufacturing, logistics, e-commerce, software licensing, or cross-border distribution, businesses should consider including a hardship clause alongside the force majeure clause. This provides a mechanism for price renegotiation or adjustment in the event of sharp tariff increases or market shifts.
Trigger examples to include in a hardship clause:
- Government-imposed tariffs or duties that increase input costs by more than 30%–50%.
- Major currency devaluation or inflation exceeding a pre-defined threshold.
- Regulatory changes or force majeure events that significantly alter the cost structure or commercial balance.
Conclusion
- Civil law countries (e.g., China, Germany, Brazil, France, Egypt, Vietnam) generally allow price adjustment through court or arbitration when high tariffs or similar events cause excessive burden.
- Common law countries (e.g., U.S., UK, Canada, Hong Kong, Malaysia) require explicit contractual clauses; courts rarely intervene on hardship grounds alone.
- Transitional or mixed jurisdictions (e.g., Saudi Arabia, South Africa, Taiwan) may allow for price adaptation, but only under limited or evolving frameworks.
Practical Tip: Always review governing law and include clear price adjustment or hardship provisions in your contracts—especially when operating across borders or in volatile regulatory environments.
6. Sample Price Adjustment Clause
As discussed above, certain countries may allow contract price adjustments when government-imposed tariffs or similar measures create excessive burdens. But in most common law jurisdictions, this legal protection doesn't exist by default—contractual language is essential.
To safeguard against sudden cost increases, businesses should include a dedicated price adjustment clause in their international contracts. This is especially important for businesses importing or exporting goods, using long-term supply agreements, or licensing cross-border services where cost structures are vulnerable to government action or geopolitical events.
Below is a sample clause that can be customized for your industry and jurisdiction.
Practical Tip:
This clause is designed to help you address large, unforeseen cost increases—particularly from tariff hikes, new import/export regulations, or government taxes. It does not apply to minor market price changes. If you're in industries like manufacturing, logistics, e-commerce, or SaaS, you can tailor this with your own thresholds, timelines, and governing law. You may also want to integrate this with your force majeure or hardship clauses (as covered earlier).
Sample Price Adjustment Clause
Price Adjustment Due to Government Action or Extraordinary Cost Increases
1. Triggering Events
If, after the Effective Date of this Agreement, either of the following occurs:
- A new or increased tariff, duty, tax, levy, or government-imposed fee applicable to the goods or services under this Agreement; or
- A change in law, regulation, or import/export restriction that results in a cost increase of [X]% or more to either Party’s performance;
then the affected Party may request a price adjustment by providing written notice to the other Party.
2. Renegotiation Process
Within [10] business days of such notice, the Parties shall engage in good faith negotiations to revise the pricing, delivery terms, or other affected provisions to reasonably reflect the increased costs.
3. Failure to Agree
If the Parties are unable to reach agreement within [15] days of the initial notice:
- The affected Party may suspend performance of the affected obligations upon written notice; and
- If no agreement is reached within [30] days, either Party may terminate this Agreement (or the affected portion) by giving [10] days’ written notice, without liability for such termination.
4. Supporting Documentation
The Party requesting the adjustment shall provide reasonable documentation evidencing the increased cost or tariff, such as government notices, invoices, import/export records, or updated freight/tax calculations.
5. Exclusions
This clause shall not apply to ordinary market price fluctuations or cost increases under [X]%, which the Parties acknowledge as part of normal commercial risk.
Customization Tips
- [X]% threshold: Set this based on your industry and volatility exposure.
- 15–30% for moderate-risk contracts.
- 50% or higher for high-risk, high-volatility regions or sectors (e.g., commodity-based manufacturing).
- You can limit this clause to tariffs only, or expand to cover inflation, energy prices, shipping costs, or other cost-drivers.
- If your contract is governed by civil law jurisdictions (e.g., China, Germany, France), you can add a reference to local hardship doctrines or UNIDROIT Principles Article 6.2.2 to reinforce your legal footing.
7. What Happens If There Is No Contractual Protection But a Business Faces Substantial Loss?
In the previous section, we provided a sample clause to help businesses proactively protect themselves. But what if you're already locked into a contract without a price adjustment clause or a force majeure clause that covers tariffs—and you’re now facing a substantial financial loss due to a sudden 50% or even 100% tariff?
This is unfortunately the reality for many businesses today. In such situations, it’s crucial to understand what your legal options are—and are not.
The General Rule: You Still Have to Perform
In most jurisdictions, if performance is still possible, even if it’s now much more expensive or unprofitable, you are still legally required to perform the contract—unless a hardship clause, force majeure clause, or specific statute provides relief.
This is especially true in common law countries (e.g., U.S., U.K., Canada, Hong Kong, Malaysia, Philippines), where:
“Economic hardship, changes in costs, or reduced profitability do not excuse performance—unless the contract explicitly says so.”
Even a 100% cost increase due to tariffs will generally not be enough to get out of a contract or adjust the price, unless one of the following applies:
- The new government measure makes performance impossible or illegal;
- The contract includes a price adjustment or hardship clause;
- You are in a civil law jurisdiction that accepts a “change of circumstances” or “excessive burden” doctrine (e.g., China, France, Germany, Brazil, Egypt, Vietnam).
What You Can Do: Send a Formal Request to Renegotiate
When legal excuses are unavailable, the only realistic course is to open a renegotiation dialogue with your counterparty—even though they are not legally obligated to agree.
A structured, professional approach will demonstrate good faith, increase your chances of success, and preserve business relationships.
Step-by-Step Guide: What to Do If New Tariffs Cause Big Losses
Step 1: Review Your Contract Carefully
Look for clauses that may offer relief:
- Force Majeure Clause
- Does it include “government actions,” “tariffs,” or “import/export restrictions”?
- Does it allow suspension, delay, or termination?
- Hardship or Price Adjustment Clause
- Does it permit renegotiation if cost of performance rises substantially?
- Termination Clause
- Are there provisions for termination due to prolonged force majeure or material adverse changes?
Step 2: Assess the Governing Law
- Civil law jurisdictions (e.g., China, Germany, Vietnam, Brazil): May allow contract modification or termination based on change of circumstances or excessive hardship.
- Common law jurisdictions (e.g., U.S., U.K., Canada, Malaysia): No relief unless explicitly written in the contract. Financial burden is not a valid excuse.
Step 3: Quantify the Impact
Prepare data to show:
- The exact cost increase due to the tariff.
e.g., “Cost has increased by 100%, from $5/unit to $10/unit.” - Why this makes continued performance unviable or unfair.
- Efforts you've made to mitigate the cost.
Step 4: Send a Formal Renegotiation Request
Draft a professional, respectful letter or email that:
- Outlines the unexpected tariff and its impact.
- Refers to the principles of commercial fairness and good faith.
- Proposes specific solutions (e.g., price revision, delivery changes, shared cost burden).
Step 5: Keep a Record and Maintain Performance (If Required)
- Document all communication with the counterparty.
- Do not walk away from the contract prematurely—especially under common law systems, where that could result in breach and damages.
- Continue to perform as much as reasonably possible, while negotiating revised terms.
Sample Renegotiation Letter or Email
Subject: Request for Renegotiation of Pricing Due to New Tariffs
Dear [Counterparty Name],
We hope this message finds you well.
We are writing regarding our [Supply Agreement / Purchase Order No. X], dated [insert date], currently in effect between [Your Company] and [Counterparty Name].
As you may know, the [U.S. / China / other government] recently imposed a new [e.g., 100%] tariff on [describe product], which directly affects the goods covered under our agreement.
This unforeseen change has significantly increased the cost of performance on our side and altered the economic balance of the contract.
While we remain fully committed to our relationship and to fulfilling our obligations, we believe the situation warrants a discussion on possible adjustments to reflect this new reality.
We respectfully request a renegotiation of the pricing and/or delivery terms in accordance with good faith and commercial fairness.
We propose to arrange a call or meeting at your convenience to explore workable solutions together.
Thank you for your attention and understanding.
Sincerely,
[Your Name]
[Your Title]
[Company Name]
For Canadian Businesses Facing U.S. Tariffs
If you are a Canadian business navigating the impact of U.S. tariff policies, you may find these two dedicated blog posts helpful:
• Contract Issues Canadian Manufacturers Should Consider When Facing U.S. Tariffs
• Before the Layoff: Key Legal Considerations for Canadian SMEs Facing U.S. Tariffs
These articles provide practical insights into cross-border contract risks, employment law implications, and legal strategies tailored to Canadian businesses.
8. Final Thoughts: Prepare, Protect, and Act Proactively
Trade wars and sudden, high tariffs can disrupt even the most well-planned international supply chains. As this blog has shown, whether such events justify termination, non-performance, or price revision depends entirely on two things: the contract’s wording and the governing law.
Without clear contractual protections, businesses may be forced to absorb huge financial losses—or risk breaching the agreement altogether.
To protect your business going forward:
- Include force majeure and hardship/price adjustment clauses in every new cross-border contract.
- Conduct legal audits of your key existing agreements to identify exposure.
- Take action early—if your contract doesn’t cover these risks, send a formal renegotiation request rather than silently defaulting.
- Understand the laws of the countries involved, especially for contracts with counterparties in civil law jurisdictions like China, Brazil, France, and Germany.
Trustiics Can Help
Whether you're a business owner, in-house counsel, or contract manager dealing with cross-border legal issues, Trustiics provides direct access to vetted lawyers in major jurisdictions including China, the U.S., Canada, Brazil, India, and more.
We can assist with:
- Contract review: Evaluate your exposure to tariff-related risks
- Clause drafting: Tailored force majeure and price adjustment language
- Renegotiation support: Jurisdiction-specific letters and legal strategy
- Quick legal answers: On-demand consultations with experienced counsel
Need help reviewing a contract or drafting a renegotiation letter?
Trustiics makes it fast, secure, and transparent to get cross-border legal help. Get connected with a Trusted Legal Expert or email us at support@trustiics.com to get started.