On February 1, 2025, President Donald J. Trump issued ‘Imposing Duties to Address the Issues at Our Southern Border,’ ‘Imposing Duties to Address the Synthetic Opioid Supply Chain in the People’s Republic of China,’ and ‘Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border,’ executive orders imposing tariffs on various goods imported into the United States from China, Canada, and Mexico. On February 3, 2025, shortly after the initial orders were issued, the Administration issued additional executive orders that temporarily suspended the 25% tariffs on imports from Canada and Mexico following negotiations and concessions from both countries. However, the 10% tariff on all imports from China took effect on February 4, 2025, and remains in place.
Despite the temporary suspension, the Administration has now confirmed that the 25% tariffs on goods from Canada and Mexico will take effect today, Tuesday, March 4, 2025. Additionally, tariffs on imports from China will increase by an additional 10% to a 20% rate.
Impact on Contracts and Risk Allocation
The tariffs could have significant implications for previously negotiated contracts as well as those in flux. Key concerns include:
- The automatic trigger of price-escalation clauses in response to tariffs, or contractually mandated renegotiations of pricing structures to account for tariff increases.
- Risk allocation uncertainties between vendors and customers in contracts that do not expressly address tariffs or cost-shifting provisions.
- Cost-sharing challenges, particularly when contracts are silent or ambiguous on how increased tariff costs should be allocated between parties.
- Potential invocation of force majeure or termination clauses due to increased costs or supply chain disruptions.
- Evolving change in interpretation of the law, given the scale and sudden impact of these tariffs, requiring businesses to reassess their definitions and contract language.
How We Can Help
Given the potential for increased costs and supply chain uncertainties, businesses should be proactive in determining their exposure to these new tariffs.
Leech Tishman’s Corporate Practice Group can assist businesses in analyzing existing contracts to identify which parties are responsible for covering additional tariff costs, as well as explore strategies for price adjustments or passing through costs to mitigate financial strain.