The Trump administration has adopted an aggressive trade policy, announcing a number of actions that will significantly impact global commerce. Most notably, President Donald Trump's tariffs—and the retaliatory tariffs imposed by other nations—are already impacting suppliers' and buyers' ability to perform under commercial contracts. Tariffs may impact contracting parties in a variety of ways, including increasing the cost of performance. They can also cause supply chain disruptions, which, in turn, affect a party's ability to perform under a contract, regardless of cost.
Contractual force majeure clauses may serve as a basis for relief when deals turn bad due to significant changes in trade regulations, including tariffs. Whether a force majeure clause operates to excuse a party's performance will primarily depend upon the language of the contract. The law varies from jurisdiction to jurisdiction and country to country. For instance, some civil law jurisdictions have codified what constitutes a force majeure event. This alert addresses the subject from a U.S. common law perspective.
Force Majeure Clauses Generally
Many commercial contracts contain "force majeure" provisions, which are designed to excuse nonperformance or delayed performance of contractual obligations for extraordinary, uncontrollable events that negatively impact a party's ability to fulfill those obligations.1 In other words, force majeure provisions allocate the risk of events outside of the control of the parties that impact performance under a contract.2 There is no implied force majeure, meaning that a party can only invoke force majeure if the contract includes a force majeure provision.
While the language of force majeure clauses vary considerably, most clauses contain a list of events that will constitute a force majeure event, such as labor strikes, natural disasters, wars, or freight embargoes. Force majeure clauses often contain a "catchall," such as "or other similar causes beyond the control of such party."
Tariffs as a Force Majeure Event
The applicability of a force majeure clause to tariffs depends on the specific language in the contract.3 Force majeure clauses are "narrowly construed" and will only excuse a party's nonperformance if the event alleged to have prevented performance is "specifically identified" in the parties' contract.4 For instance, parties seeking to invoke force majeure clauses to excuse performance based on the COVID-19 pandemic were generally unsuccessful absent specific contractual language that contemplated disease, pandemics, or governmental action as a basis for excused performance. The requirement that the event must be expressly identified in the force majeure clause in order to excuse performance is "especially true where the event relied upon to avoid performance is a market fluctuation."5 This narrow construction also applies to a "catchall" in a force majeure clause, cabining the meaning to "things of the same kind or nature as the particular matters mentioned."6
A force majeure clause may excuse performance based on new or increased tariffs if it specifically identifies tariffs, governmental...
