US TARIFFS | Contractual clauses for managing price increases

On April 2, 2025, U.S. tariffs toward products from the EU will go into effect.

Given what happened with the tariffs imposed on Canada and Mexico, with a chase of announcements of entry into force and suspensions and new announcements, it is impossible to make even short-term predictions.

One must prepare oneself for the possibility of imposition of duty, which is a foreseeable and anticipated event and, as such, should be regulated in the contract. Failure to do so is likely to be very costly because there are no valid arguments for excusing the non-performance of contracts already concluded by invoking a situation of Force Majeure (which does not exist, because the performance has not become objectively impossible) or of supervening excessive onerousness or hardship: even in the case of increases well over 25 percent, tribunals around the world tend to rule out its invocation).

The caution that can be taken is to negotiate a price update clause, expressly referring, among other factors, to the eventual adoption of tariffs.

A useful clause may be the so-called Escalator or Price Adjustment Clause, by which the right to renegotiate the price is provided in the case of imposing a duty above a certain threshold, for example:

PRICE ADJUSTMENT CLAUSE

Triggering Event

A «Triggering Event» shall be deemed to occur if:

• There is an increase in customs duties or the introduction of new trade barriers not previously contemplated, resulting in an increase in the total price of the goods or services by X% or more.
• Such an increase affects either (i) the Buyer directly or (ii) the Seller due to tariffs imposed on its upstream suppliers, materially impacting the cost of performance.

Trigger Mechanism

In the event of a Triggering Event:

• The affected Party shall notify the other Party in writing within thirty (30) days of the effective date of the customs duty change or the introduction of the new trade barrier.
• The notification must include supporting documentation demonstrating the financial impact of the Triggering Event.

Renegotiation Process

Upon receipt of a valid notification, the Parties shall engage in good-faith negotiations for sixty (60) days to agree on an adjusted price that reflects the increased costs.

Failure to Reach an Agreement

If the Parties fail to reach an agreement on the price adjustment within the prescribed sixty (60) days:

Option 1 – Contract Termination: Either Party shall have the right to terminate the contract by providing written notice to the other Party, without liability for damages, except for obligations already accrued up to the termination date.

Option 2 – Third-Party Arbitrator: The Parties shall appoint an independent third-party arbitrator with expertise in international trade and pricing. The arbitrator shall determine a fair market price, which shall be binding on both Parties. The cost of the arbitrator shall be borne equally by both Parties unless otherwise agreed.

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Another possible tool as an alternative to the clause just seen is the so-called Cost Sharing clause, for example:

COST SHARING CLAUSE

Triggering Event

A «Triggering Event» shall be deemed to occur if there is an increase in customs duties or the introduction of new trade barriers not previously contemplated, resulting in an increase in the total price of the goods by [X]% or more. Such an increase will be borne by the Buyer by up to [X]%, while higher increases will be shared equally between the seller and buyer.

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It is appropriate for such clauses to be adapted on a case-by-case basis to best to reflect the scenarios that are expected to affect the price of the products, namely

• imposition of duty on U.S. entry
• imposition of duty on EU entry

but also indirect effects, such as where it is the seller who invokes price renegotiation, for example because the price of the product has increased due to the duty paid by one of its upstream suppliers in the supply chain, in which case it is crucial to identify which products are relevant and to document the increases resulting from the imposition of tariffs.