_tariffs and contracts: what european companies need to do now
Tariffs have become an unavoidable part of international trade. For European companies doing business with their counterparts from the United States tariffs now translate into higher costs, increased uncertainty, and frequent renegotiations. Many businesses feel trapped between rising duties and pressure from clients to keep prices stable.
While operational adjustments—such as changing suppliers or accelerating shipments—can provide short-term relief, they do not address the deeper problem. The real battleground is the contract. How you draft, negotiate, and enforce your commercial agreements will determine whether tariffs become a devastating burden or a manageable risk.
Where Companies Are Most Exposed
Tariffs impact contracts in several ways:
- Pricing pressure: Fixed-price contracts leave sellers exposed if tariffs increase suddenly. Without adjustment clauses, the added cost often erodes margins.
- Supply chain disruption: Tariffs can delay shipments, trigger reclassification of goods, or push suppliers to raise their own prices.
- Legal uncertainty: Many companies assume that tariffs automatically count as force majeure events. In reality, that depends entirely on the contract wording and governing law.
- Termination risks: Long-term supply agreements can become unprofitable overnight if tariffs are imposed, leaving businesses bound to disadvantageous terms.
Contractual Tools to Mitigate Tariff Risk
Companies should not treat tariffs as a shock they must absorb alone. Well-structured contracts can spread the risk, create flexibility, and protect relationships with business partners. Among the most effective clauses are:
- Price adjustment clauses: These allow prices to move in line with tariff increases or decreases. A formula-based approach (e.g., adjusting unit price by a percentage of tariff change) creates transparency and reduces disputes.
- Hardship clauses: If tariffs significantly raise costs (for example, by more than 15%), a hardship clause can trigger renegotiation. This ensures neither party is locked into terms that no longer make commercial sense.
- Force majeure provisions: If tariffs or retaliatory measures make performance impossible (for example, where customs bans disrupt supply altogether), force majeure language can excuse non-performance. But beware: most courts require tariffs to be explicitly listed as a qualifying event, otherwise cost increases alone may not suffice. The performance should be impossible.
- Termination rights: Where tariffs exceed a certain threshold, termination clauses allow one or both parties to exit without penalty. This can be vital for long-term contracts that would otherwise become financially unsustainable.
- Notification and transparency requirements: Clauses requiring parties to notify each other of tariff changes within a fixed period reduce surprises and foster cooperation.
Practical Steps for European Businesses
- Audit your contracts: Identify which agreements are most exposed to tariff volatility. Pay particular attention to fixed-price supply contracts, logistics agreements, and distribution deals.
- Review governing law: Whether a tariff can excuse non-performance often depends on jurisdiction. European civil law systems sometimes provide broader statutory relief, while common law systems (including English law) apply stricter standards.
- Renegotiate where possible: Many counterparties prefer renegotiation over litigation. If tariffs are making performance burdensome, initiate discussions early. Often, customers or suppliers are open to sharing the cost if it avoids disruption.
- Plan for new contracts: When drafting future agreements, build in tariff-responsive language. Specify how costs will be allocated, what happens if tariffs change mid-contract, and how disputes will be resolved.
- Think beyond price: Tariff clauses are not just about cost. They can also cover volume flexibility, shipment timing, and sourcing obligations—tools that help manage uncertainty without damaging relationships.
Compliance and Reputation
In seeking relief, companies must not overlook compliance. Misclassifying goods to lower tariff exposure or failing to follow customs requirements can lead to investigations, penalties, and reputational harm. Strong compliance processes are essential, and they can even become a commercial advantage when clients demand reliability.
Looking Forward
Tariffs will remain part of the global trading landscape. At least for some time. European companies cannot eliminate this risk, but they can manage it strategically. Contracts should no longer be seen as static documents signed and forgotten. Instead, they must be living instruments that evolve with the trade environment.
Well-drafted clauses give businesses the flexibility to adapt, the leverage to renegotiate, and the legal foundation to protect performance. In an era of shifting trade policies, the companies that succeed will not be those that wait for tariffs to change, but those that anticipate change and are prepared for it.
Contact
Koray Dagdeviren, Lawyer (TR), Of Counsel