Companies are facing a unique trade market. President Trump has announced various tariffs, including additional tariffs on China, the on-again, off-again tariffs on Canada and Mexico, auto tariffs, steel and aluminum tariffs, and “reciprocal” tariffs on goods imported to the United States from virtually all countries.

Given the shifting tariff landscape and resulting unpredictability for businesses, companies should review their contracts with suppliers, vendors, and direct customers, to evaluate whether any provisions allow contract modification or termination in light of the tariffs. Certain contractual provisions could be applicable in business-to-business (B2B) and business-to-consumer (B2C) contracts.

Business-to-Business Contracts

Typically, B2B contracts include provisions addressing force majeure events, material adverse changes, material adverse events, and termination. Some may specify—through price escalation or similar clauses—renegotiation or exit triggers if costs exceed a particular threshold. Below are key provisions that ought to be evaluated—whether you are looking to exit, renegotiate, or maintain existing terms.

Force Majeure

Force majeure clauses relieve parties of their contractual duties where certain events outside their control prevent or hinder performance. Standard force majeure clauses list particular qualifying events (e.g., natural disasters, fire, war) and may include a general catch-all phrase for “other events outside the party’s reasonable control.”

Obtaining force majeure relief generally requires proving:
• A force majeure event occurred as defined in the contract
• The event was outside the party’s control and was not caused by their actions or negligence
• The event caused the party’s non-performance

Typically, economic hardship from greater costs, delays, and reduced profits is insufficient for force majeure relief. If tariffs are specifically listed as a force majeure event, that could help establish the first element. Otherwise, the first and third prongs could present difficulties for parties seeking to invoke force majeure for relief from tariff impacts.

Termination Clause

Termination clauses permit the parties to end the contract under certain circumstances. Some termination clauses also allow the parties to cancel without justification or “for convenience”—providing parties flexibility to end contracts that are no longer economically beneficial.

Price Escalation Clause

Price escalation clauses outline how the parties will handle increases in the cost of supplies or materials after the parties execute the contract. These clauses usually apply when the prices exceed an amount agreed to by the parties and may list approved replacement materials. Counterparties who may be negotiating contracts now or in the near future may wish to include a price escalation clause to allocate financial risk from potential tariff impacts.

Business-to-Consumer Contracts

Consumer protection laws govern B2C contracts. Force majeure clauses in B2C contracts can be less effective in relieving sellers from fulfilling their obligations because of tariff impacts than comparable clauses in B2B contracts. For example, a federal court in the Northern District of Illinois found a force majeure clause unenforceable in a breach of contract class action against an airline for failing to refund flights canceled during the COVID-19 pandemic. The airline argued that the pandemic and related restrictions constituted force majeure events. The plaintiffs asserted that the airline canceled the flights for economic reasons, i.e., to save money.

The court stated that even if the pandemic and related orders were force majeure events, this alone did not excuse the airline from providing refunds. Thus, the court denied the motion to dismiss as to one plaintiff who plausibly alleged his flights were canceled for economic reasons and found that discovery was necessary to determine whether the proximate and direct cause of the cancellations was the pandemic or economic factors.

This case, and others like it, suggest that courts might evaluate force majeure clauses differently in B2C contracts than they do in B2B contracts. Specifically, force majeure might not excuse businesses from certain obligations to consumers, like offering refunds or providing “material change” notices to increase subscription prices if the motivation is strictly economic.

Venable is monitoring tariff developments. If you have questions regarding tariffs or the content of this article, please contact the authors.

This guidance for your consideration is courtesy of our friends at Venable LLP, https://www.venable.com/.