Trump’s tariffs: 5 Legal Moves Every GC Should Make Now
By Laura Messchendorp, Content Marketing Lead at Robin AI
President Donald Trump's extensive new tariffs, implemented on April 5, have caused significant disruptions in global trade, forcing businesses to deal with increased costs and legal ambiguities.
The administration's tariffs, ranging from 10% to 25% on all imports from allied countries and up to 54% for others, are poised to disrupt supply chains and increase consumer prices. Companies that rely heavily on imported goods, especially in sectors like automotive and electronics, are now grappling with immediate challenges in managing operational expenses and pricing strategies.
The comprehensive scope of Trump's tariffs has rendered the supply diversification strategies of even the largest global companies (such as Apple) ineffective. This has forced businesses to seek new ways to optimize operations and find stability. Additionally, the tariffs introduce legal complexities, as contract provisions related to tariffs can differ based on the country, supplier, and type of product.
As companies brace for potential retaliatory tariffs, AI can play a crucial role in ensuring compliance with evolving regulations and helping legal and procurement teams focus on high-risk contracts.
Key areas for contract review
Businesses must first determine which contracts are impacted by the tariffs, such as import/export agreements and supply contracts, and identify who is responsible for the increased costs.
This involves examining:
Price escalation clauses: To assess whether contracts allow suppliers to adjust prices due to force majeure or other clauses.
Origin of goods clauses: To identify exposure to tariffs.
Minimum purchase obligations: To evaluate if commitments can be renegotiated in light of rising costs.
Termination clauses: To understand exit options and any associated penalties.
These considerations are relevant for transfer pricing within multinational corporations as well as between different companies.
In the current uncertain trade environment, adopting flexible contract models and proactive contract management is essential.
What are smart legal teams doing now?
Forward-thinking legal departments are not waiting for litigation or trade resolutions; they are taking action now:
Establishing cross-functional risk teams: Collaborating with legal, finance, procurement, and operations to identify high-risk relationships. Standard clauses like force majeure may not cover tariffs or political decisions, while termination rights might offer relief but come with significant penalties. These teams should map out potential risks associated with rising production costs due to tariffs.
Using AI tools: Deploying AI to analyze large volumes of contracts for tariff-sensitive language quickly. AI can identify compliance-related warranties, highlight inconsistencies across suppliers, and determine which agreements include or lack robust change-in-law clauses affected by tariffs or new trade agreements.
Updating contract templates: Revising playbooks and clause libraries to standardize how new agreements address trade disruptions. This includes introducing fallback pricing mechanisms or renegotiation triggers tied to tariff thresholds and ensuring consistent application across thousands of contracts using Legal AI.
What’s next?
While tariffs are currently a hot topic, the trade war is far from over, and legal teams should prepare for further volatility. Key trends to watch include:
Retaliatory measures: Countries affected by U.S. tariffs are likely to respond similarly, leading to legal chaos across different jurisdictions.
Legislative scrutiny: Ongoing lawsuits challenging Trump's use of the International Emergency Economic Powers Act (IEEPA) could set significant precedents for executive trade authority.
Contract reforms: Expect companies to include tariff-specific language in contracts and adopt dynamic, risk-sharing pricing models.
AI-driven solutions: As changes occur rapidly, legal teams will increasingly rely on AI to stay compliant and keep contracts current.
For more insights on navigating tariff consequences, read our guide on proactive strategies for legal teams.
Attorney-at-law | Business Advisor & Facilitator | Science Admirer | Generalist | Member to the Leadership Team | Business Development Transactions | Regulatory | Compliance | Company Secretary [Opinions of my own]
5moDiligent attorneys advising clients involved in international trade should have identified the risk of escalating trade tensions and tariffs as a significant, foreseeable issue since at least 2021, when the US administration began emphasising "unfair trade practices" by China. It was then certain that there was a growing bipartisan consensus (supporting previous 2018 tariffs) in the US favouring a more confrontational approach to trade with China. Indeed, proactive legal teams should have focused on negotiating specific contractual mechanisms (like clear change-in-law provisions, price adjustment formulas, or tariff-specific clauses) to allocate these foreseeable risks (notwithstanding the US election result), rather than hoping for relief under the FM, which is completely inadequate here (esp. e.g., under English law, with the strict requirement for a FM event to be genuinely unforeseeable at the time of contracting likely harms parties facing US-China tariffs, as these were arguably predictable, leaving them without excuse for non-performance unless explicitly covered). The current situation highlights the importance of forward-looking risk assessment and precise contractual drafting in volatile geopolitical environments.