How To Draft Resilient Commercial Contracts

In today’s interconnected economy, businesses face a renewed wave of tariff uncertainty. Shifting geopolitical dynamics and escalating trade disputes have made tariffs a common feature of international commerce, not just an occasional disruption. For companies reliant on global supply chains, these developments translate directly into higher costs, disrupted business models, and significant risks to contractual performance.

The problem is that many commercial contracts were not drafted for this level of volatility. They often fail to specify which party bears the burden of new tariffs, how pricing should be adjusted, or what rights a party has to terminate an agreement. When disputes arise, companies often turn to force majeure clauses or common-law defenses like impossibility or impracticability.

However, courts consistently take a narrow view of these defenses in the tariff context. A simple increase in cost or a decrease in profitability is rarely enough to excuse performance. The most effective strategy is not relying on broad legal defenses after the fact, but proactively drafting clear, precise contracts that anticipate and allocate tariff risks from the start.

Why Common Law Defenses Fail in Tariff Disputes

When tariffs disrupt a commercial agreement, businesses often invoke common-law doctrines like impossibility, impracticability, and frustration of purpose. Yet, these defenses face a steep uphill battle in court and are rarely successful.

The High Bar of Foreseeability and Profitability

U.S. case law is clear: these defenses only apply when performance is genuinely impossible, not just more expensive or less profitable. If a tariff makes a contract more burdensome but still technically possible to perform, a court is unlikely to excuse non-performance.

Foreseeability is another critical factor. If trade tensions or potential tariff changes were foreseeable when the contract was signed, courts often rule that the parties knowingly assumed that risk.

The Weakness of Generic Force Majeure Clauses

Force majeure clauses have not provided a reliable safe harbor, especially when drafted with generic terms like “acts of government” or “events beyond control.”

• Narrow Interpretation: Courts interpret these clauses strictly, questioning whether a specific event like a new import duty was truly contemplated by the language.
• Routine Market Shifts: Without explicit language, courts often classify tariffs as routine market shifts or foreseeable policy changes rather than unforeseeable shocks that would trigger a force majeure clause.

In numerous cases, judges have rejected these defenses because a party continued performing after tariffs were imposed or because a fixed-price contract was seen as already allocating the risk. These rulings underscore a consistent theme: common-law defenses and generic force majeure clauses are unreliable shields against tariff risks.

The Pitfall of Generic Force Majeure Clauses

Many companies assume that a standard force majeure provision referencing “acts of government” will protect them from tariff shocks. Experience and court rulings prove this assumption is dangerous.

The core issue is that courts demand specificity. A broad reference to “government actions” is typically insufficient to cover tariffs unless they are explicitly mentioned. Instead, tariffs are often categorized as foreseeable commercial contingencies—a standard risk of doing business that does not excuse performance.

The judicial message is clear: if the parties intend for tariffs to trigger relief, the contract must say so explicitly. Businesses must look beyond boilerplate language and adopt tailored provisions that directly confront tariff-related risks.

6 Key Strategies for Drafting Tariff-Proof Contracts

Proactive drafting is the most effective way to mitigate tariff exposure. Here are six essential strategies to incorporate into your commercial agreements.

1. Allocate Tariff Risks Explicitly

State clearly which party is responsible for new or increased tariffs, duties, and similar levies. Avoid ambiguity. A contract can place the burden on the buyer, the seller, or use a hybrid approach where costs are shared above a certain threshold. This clarity prevents costly disputes later on.

2. Prescribe Consequences Clearly

Define exactly what happens if tariffs materially change the deal’s economics. Effective options include:

• Price Adjustments: An automatic price escalation clause tied to specific tariff changes.
• Renegotiation Rights: A right for either party to request renegotiation if tariffs exceed a set percentage.
• Termination Rights: The right to suspend or terminate the agreement if tariffs cross a pre-defined, significant threshold.

3. Move Beyond Generic Force Majeure

Strengthen your force majeure or change-in-law provisions. Instead of relying on vague terms like “acts of government,” explicitly list “tariffs, duties, customs charges, trade restrictions, or similar government-imposed levies” as triggering events. This signals clear intent to the courts.

4. Include Hardship and Renegotiation Clauses

A hardship clause addresses situations where performance is still possible but has become excessively burdensome. This provision allows the affected party to demand renegotiation in good faith. If an agreement can’t be reached, the clause can provide a structured exit, such as termination without penalty.

5. Preserve Your Defenses Through Conduct

Be mindful of your actions after a tariff is imposed. Continuing to perform without objection can be interpreted as accepting the new costs, which weakens any later claim of impracticability. To preserve your rights, formally document your objections and expressly reserve your rights when discussing interim solutions.

6. Use a Practical Drafting Checklist

When negotiating, ensure your contract includes:

• A clear definition of which tariffs and duties are covered.
• Explicit allocation of risk (who pays).
• Mechanisms for price adjustments or renegotiation.
• Clear notification and evidence requirements.
• A structured exit strategy if negotiations fail.

Conclusion: Proactive Drafting is the Best Defense

Tariff volatility is the new normal in global trade. Relying on common-law defenses or boilerplate force majeure clauses is a losing strategy. The courts have consistently shown that increased costs alone will not excuse performance.

The lesson is clear: tariff risks must be managed at the drafting stage. By explicitly allocating responsibility, defining clear consequences, and using precise language, businesses can turn uncertainty into manageable, predictable outcomes.

Now is the time to review existing agreements and ensure new contracts are built for resilience. Tailored, proactive drafting is the best way to mitigate disputes and secure your supply chain in an era of ongoing trade disruption.

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