Understanding the implication of tariffs on your supply chain

The contracts that govern your supply chain arrangements may be long, lengthy documents which cover a whole host of clauses and schedules, however not all will be relevant when reviewing in the context of potential supply chain disruption caused by “tariff-mania”.  Key clauses to focus on include:

• Term, termination and break of contract – how long are you locked into the contract, and what might the options be to walk away?
• Exclusivity – does the contract commit you to a supplier, or could non-exclusive supply options help mitigate impacts?
• Minimum sale or purchase obligations – are there commitments which might now be made difficult by the impact of tariffs?
• Nominated manufacturing premises, or suppliers – does the contract give flexibility in where product is made, or where components are sourced?
• International trade terms, such as Incoterms® 2020 – what terms apply, and how do they allocate tariffs?
• Responsibility for export/import licences and duties – does the contract already assign tariffs to one party?
• Responsibility for ensuring any goods get through customs – who is responsible for non-tariff customs barriers?
• Price adjustment mechanisms – are prices fixed, or are there mechanisms to adjust prices if impacted by tariffs (or generally)?
• Currency exchange rate fluctuations – as currencies react to tariffs, does the contract give scope to reflect those changing exchange rates?
• Material adverse change – does the contract include a “MAC” clause that could be triggered by the tariffs?
• Force majeure – could the force majeure clause potentially be triggered by tariffs?
• Dispute resolution – are there contractual mechanisms that could help the parties work through the impact of tariffs?
• Variation – if changes are needed to the contract, how do they need to be documented?
• Governing law and jurisdiction – how would a dispute arising from the impact of tariffs be resolved, and where?

Understanding what your contracts set out in relation to the above will help you understand the implications of any tariffs which impact your supply chain. In turn, this will help you navigate these choppy waters without going head to wind.

Beyond the contractual terms

Where supply chain or other contractual issues do arise, you should consider commercial and reputational risks, alongside legal issues. What may be possible legally, may not represent your best interests commercially or reputationally.

For example, you may wish to consider:

• Being open with your counterparties and discussing any issues directly to resolve any issues succinctly and amicably.
• Being flexible about restructuring deals or arrangements to preserve relationships, even where there is no legal right or obligation to do so – an approach prevalent during Covid-19.
• The potential for alternative ways of performing affected contractual obligations and/or for mitigating any losses or absorbing certain duties, charges and costs.
• How you can exit your contract early causing as least amount of disruption as possible.
• How capable you are to restructure your supply chain arrangements if exiting a contract becomes necessary.

Support  through tariff trepidation

We’re full-service, single site law firm with experts across everything from commercial contracts to commercial disputes resolution, competition and regulatory compliance. Our manufacturing, distribution and international trade expertise spans all of these, including our highly regarded Manufacturing Team and International Trade Team.

James Crayton, Nick McQueen, and Kyran Clarke are able to provide thorough advice on all elements of supply chain arrangements and how to navigate any issues that may have arisen since T-Day, the date on which President Trump announced so-called reciprocal tariffs on imports to the United States.