If you’re a UK company trading with the US or involved in any part of a supply chain where goods are exported then you’ve probably felt the impact of American tariffs. Whether you’re shipping directly, supplying parts, or relying on US buyers, these trade measures can hit your bottom line fast.
What’s less talked about is the legal impact—how these tariffs affect your contracts, who pays, and what happens if a deal becomes unworkable? This guide outlines the legal and practical steps you business can take to protect itself from tariff-related risks.
What Are US Tariffs?
US tariffs are import taxes imposed by the US government on goods entering the country. While tariffs are often seen as economic tools; in recent years they’ve increasingly been used as political levers—with major consequences for international trade.
A significant wave of tariffs was introduced during the Trump administration, particularly under:
- Section 232 of the Trade Expansion Act 1962 – targeting steel and aluminium imports on national security grounds; and
- Section 301 of the Trade Act 1974 – targeting Chinese goods in response to alleged unfair trade practices.
These so-called Trump tariffs are still in force in many areas and continue to disrupt UK supply chains. UK businesses caught in the middle may suddenly find themselves facing a 25% or 50% duty on goods they had priced months before, with no legal clarity about who should bear the cost.
Can I Cancel a Contract Because of a New Tariff?
Not easily. English law rarely allows contracts to be cancelled due to cost increases alone. The doctrine of frustration only applies if an event makes performance impossible or fundamentally different. In Davis Contractors Ltd v Fareham UDC [1956] AC 696, the court held that cost overruns and delays were not enough to frustrate a building contract—the parties remained bound.
Does a Force Majeure Clause Protect Me?
Maybe—but only if it’s drafted clearly. Force majeure clauses must mention foreign government action or tariffs to be effective. Without specific language, they may not protect you against unexpected duties.
Who Pays the Tariff—Me or the Other Side?
It depends on your contract and the agreed Incoterms. Delivered Duty Paid (DDP) generally places tariff responsibility on the seller, whereas Free on Board (FOB) or Ex Works (EXW) can shift that burden to the buyer.
Can We Renegotiate the Contract?
Only if your contract includes a price adjustment or hardship clause. These provisions give parties a formal route to review pricing or delivery terms when economic conditions change substantially.
What Happens If There’s a Dispute?
It’s important not only to include a dispute resolution clause, but to ensure that both the governing law and the seat of arbitration are clearly defined. Enka Insaat ve Sanayi AS v OO Insurance Company Chubb [2020] UKSC 38 , the UK supreme Court considered a contract that had no express choice of law for the arbitration clause. The court held that unless there is a clear indication to the contrary, the law governing the main contract will generally also govern the arbitration agreement.
However, that does not automatically determine which country’s courts have jurisdiction. The court explained that if the seat of arbitration is England, then English law govern the arbitration agreement even if the main contract is silent or governed by a different system. In that case, the parties had chosen London as the seat, which the Court interpreted as a strong indication that English law applied to the arbitration clause.
This decision highlights the importance of specifying not just the arbitration mechanism, but also both the seat and governing law, especially for UK companies contracting with overseas entities. Silence or ambiguity can result in unexpected jurisdictions being involved in enforcement or preliminary disputes.
What the Courts Say About Tariffs, Cost Shocks, and Contractual Risk
Legal doctrine on tariffs and trade disruption is rooted not in a single rule, but in a nuanced body of case law. For UK businesses and legal advisers grappling with US tariffs, recent and historic judgments shed valuable light on when a contract can or cannot be escaped, adjusted, or enforced.
Here are some of the key takeaways:
- Frustration is a High Bar—Even in Extraordinary Times
In the landmark case of Davis Contractors Ltd v Fareham UDC [1956] AC 696, the court held that financial hardship alone doesn’t amount to frustration.
This view was reaffirmed in Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch), where the court rejected claims that Brexit frustrated a 25-year lease. The takeaway? Even seismic political events won’t let parties walk away from clear obligations.
- Temporary or Partial Hindrance Isn’t Enough
In National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675, the House of Lords held
that temporary obstruction (here, blocked access to a warehouse) did not frustrate the lease. Courts
expect businesses to adapt unless the contract’s core purpose is entirely defeated.
- International Projects Require Stronger Risk Provisions
In GPP Big Field LLP v Solar EPC Solutions SL [2018] EWHC 2866 (Comm), the High Court considered cost escalation in a cross-border solar energy project. Payment delays and price instability did not excuse non-performance—highlighting the need for well-drafted hardship and price review clauses in international deals.
- Good Faith Can Be Part of the Equation
Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB) confirmed that
some commercial contracts imply duties of honesty and cooperation—especially in long-term relationships. While English law still resists a general doctrine of good faith, it’s gaining recognition in specific contexts.
Legal Considerations for SMEs Facing Unexpected Duties
A UK-based company exporting herbal teas to a US distributor is suddenly confronted with a 25% import tariff imposed by the US government. The distributor, feeling the financial pressure, demands a price reduction from the UK supplier.
What should the UK business do?
First, the company must examine its contract to determine whether the tariff liability was addressed—particularly in the Incoterms used. For example, if the agreement uses Delivered Duty Paid (DDP), the UK company may be responsible for the import duty. If the term is Free on Board (FOB) or Ex Works (EXW), the US buyer likely bears the cost.
If the contract is silent or ambiguous, legal advice is essential. SMEs should not assume they’re automatically liable for new tariffs. There may be legal grounds to resist the cost, renegotiate the price, or assert that the risk sits with the buyer based on broader contractual context.
This scenario highlights why UK exporters must:
- Build clarity into contracts on who absorbs tariff risk
- Include hardship or renegotiation clauses where possible
- Review Incoterms with legal advisers during contract negotiation
Legal foresight here isn’t just risk mitigation it can be the difference between preserving a commercial relationship and facing expensive litigation or financial loss.
Tax Considerations
Tariff-related costs can sometimes be offset against profits or managed through VAT and customs adjustments. Ensure your accounts reflect any duties paid, and consult a UK tax adviser to explore potential reliefs. In restructured deals or altered supply chains, correct tax treatment is essential.
Further Practical Considerations
Tariffs don’t just raise legal questions they also pose commercial and reputational ones. Clients
should be encouraged to:
- Open clear lines of dialogue with affected counterparties
- Consider interim price adjustments or shared burden mechanisms
- Factor in long-term supply risk in procurement and planning
Being legally right but commercially inflexible may damage business relationships. Strategic advice should aim to preserve value and resolve tension not just apportion blame.
Summary Checklist for UK Exporters
- Review every new contract for tariff exposure especially Incoterms and governing law clauses
- Ensure force majeure clauses include ‘foreign government action’ and ‘tariff imposition’
- Add price adjustment or renegotiation clauses where appropriate
- Clearly define who bears customs duty liability in all delivery terms
- Use arbitration clauses for cross-border enforceability
In a globalised and increasingly volatile trade environment, legal certainty is critical for UK exporters. US tariffs whether politically driven or economically motivated create legal and operational ripple effects that extend well beyond price volatility.
Businesses should take a proactive stance: reviewing existing contracts, future-proofing new agreements, and structuring relationships not only to withstand tariff-related disruptions but also to position themselves for long-term, sustainable growth in international trade.
