Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates

Navigating the Impact of the Trump Tariffs on Commercial Contracts

Skadden Insights – June 2025

Brooks E. Allen Julie Bédard Jennifer Permesly Susan L. Saltzstein Jacob F. Bell Paul Maxwell (Max) Novak

Key Points

  • New and evolving U.S. tariffs have brought uncertainty to commercial contracts.
  • The default under U.S. law is that the importer of record is liable for paying the tariffs. But contract provisions may allocate this tariff risk, in whole or in part, to another party.
  • Parties should consider evaluating their suite of contracts to assess which tariffs will impact those contracts and whether/how the tariff burden may be allocated through existing contract provisions.
  • A prudent next move would be to determine whether contract provisions — such as force majeure, change in law and MAE — could give rise to arguments in favor of adjusting or mitigating the tariff burden.

The evolving U.S. tariff regime under President Donald Trump has had and likely will continue to have profoundly impacts on commercial contracts. Commercial actors are evaluating their contractual commitments to determine the best way to address the liabilities the tariffs create. The major pillars of the tariffs currently are as follows:

1. Tariffs issued pursuant to the International Emergency Economic Powers Act (IEEPA):

  • 25% on imports from Canada and Mexico, subject to an exemption for goods that are compliant with the U.S.-Mexico-Canada Agreement (USMCA), and 20% tariff on goods from China.
  • “Liberation Day” tariffs:
    • 10% “universal” tariff on all imports from all countries, except for those subject to higher individualized tariffs.
    • Higher “reciprocal” tariffs for approximately 60 countries, with rates approaching 50% in some cases (suspended at 10% until July 9, 2025).
    • 10% reciprocal tariff (down from 125%) on imports from China until August 12, 2025.

2. Sectoral tariffs:

  • Tariffs imposed under Section 232 of the Trade Expansion Act, which authorizes tariffs or other measures on imports that threaten U.S. national security, as determined by the Department of Commerce and the president:
    • 25% tariffs on autos/auto parts.
    • 50% tariffs on steel, aluminum and derivatives of steel and aluminum.
  • Multiple pending Section 232 investigations that may result in the imposition of additional tariffs (semiconductors, commercial trucks and parts, pharmaceuticals, lumber, copper, critical minerals, commercial aircraft, and jet engines and parts).

The IEEPA-based tariffs are currently subject to multiple court challenges, and to date two federal courts have issued injunctions on the basis that the tariffs exceeded the president’s authority. These decisions are currently being appealed, and the ultimate impact on the tariff regime is uncertain.

Under 19 U.S.C. § 1484(a)(1), the “importer of record” bears responsibility for paying the tariffs. This party will pay estimated duties at the time the goods physically enter the U.S. customs territory. U.S. Customs and Border Protection (CBP) will then issue a final determination of the importer’s tariff liability, typically within 314 days of entry.

The amount owed will depend on a number of factors, including:

  • The classification of the goods as set out in the Harmonized Tariff Schedule of the United States (HTSUS).
  • The country of origin of the goods.
  • The goods’ customs value, which is calculated according to extremely complex methodologies.

The number of variables in play, combined with the delay in CBP’s liability assessment, may create significant uncertainty for importers as to how much will be owed and when.

Potential Impact of Tariffs on Contracts

Though the default under U.S. law is that the importer of record is liable for paying the tariffs, contract provisions may allocate this tariff risk, in whole or in part, to another party.

As a first step, parties should consider evaluating their suite of contracts to assess how tariffs will impact those contracts and whether/how the tariff burden may be allocated through existing contract provisions.

Next, parties may wish to determine whether contract provisions may give rise to arguments in favor of adjusting or mitigating the tariff burden. Potentially relevant provisions include:

  • Force majeure clauses. These clauses must be reviewed closely, as their language varies. They typically encompass unexpected events that prevent or hinder performance. They may give the parties rights to suspend performance or even terminate the contract. However, the specific events qualifying as force majeure are often carefully circumscribed by the contract and require a showing of more than mere economic hardship. As a result, the payment of tariffs may not constitute force majeure. Parties must assess the particular contract language, as well as applicable governing law, in order to understand whether the imposition of tariffs might give rise to a force majeure event.
  • Change in law. Contracts may contain “change in law” provisions that should be reviewed to assess whether the tariffs may fall under them. Such provisions sometimes contemplate renegotiation of terms or price adjustments to counter the impact of a change in law. In some cases, retaliatory actions in response to President Trump’s tariffs (for example, new restrictions on the export of the tariffed goods) may independently give rise to a change in law. Again, particular contract language will govern the ability to rely on these clauses.
  • Material adverse effect (MAE). In the context of certain transactions, parties may attempt to assert that MAE clauses are triggered due to the economic impact of tariffs in extreme cases. Courts in the U.S. are generally very hesitant to find that an MAE has occurred, and many contracts expressly exclude “changes in economic conditions” from their scope.

Outside of the four corners of the contract, parties might explore whether legal doctrines offer avenues for relief. In the U.S., given the respect for the freedom of contract, these doctrines are used sparingly and are likely to give way where clear contract terms prevail. Nonetheless, they may be relevant in extreme circumstances.

For example:

  • The doctrine of impossibility may be considered relevant where retaliatory restrictions prevent performance altogether or where tariffs essentially result in a “pricing out” of a competitive market such that the commercial bargain is no longer workable.
  • The doctrine of commercial impracticability may be used as an argument in favor of relief where the economic hardship imposed by the tariffs is extreme, unexpected and destroys the value of the contract.

When drafting a contract, the provisions of force majeure, change in law and MAE discussed above, along with others, may be considered in order to reflect the parties’ bargained-for allocation of tariffs on a forward-looking basis.

In the context of future disputes arising under commercial agreements currently being negotiated, the availability of these legal doctrines may change in light of the fact that parties may reflect the potential tariff impact in their contracts.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.

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