Force Majeure and Tariff-Driven Supply Chain Disruptions

Introduction

Global supply chains are more interconnected than ever, but they are also increasingly vulnerable to external shocks. Among the most disruptive events in recent years have been government-imposed tariffs—taxes levied on imports and exports—that suddenly alter the economic viability of trade relationships. When tariffs are imposed abruptly or unexpectedly, they can derail established supply chains, delay deliveries, and make contract performance economically unfeasible.

One legal doctrine that frequently surfaces in such scenarios is force majeure, a clause included in many contracts to excuse a party’s nonperformance due to unforeseen and uncontrollable events. But does the sudden imposition of tariffs qualify as a force majeure event? This article delves deep into the intersection of tariff-driven supply chain disruptions and the legal use of force majeure, exploring how courts and arbitral tribunals interpret such claims and what businesses can do to protect themselves.

Understanding Force Majeure

Definition and Purpose

The term force majeure is derived from French civil law and translates to “superior force.” In contract law, it refers to events beyond a party’s control that prevent them from fulfilling contractual obligations. Common examples include:

• Natural disasters (earthquakes, floods)
• Wars or armed conflict
• Pandemics
• Government actions (e.g., export bans)
• Labor strikes

When invoked successfully, a force majeure clause may:

• Excuse delays in performance
• Suspend contractual obligations
• Allow for renegotiation or termination of the agreement

Force Majeure vs. Hardship

It’s important to differentiate between force majeure and hardship:

• Force Majeure: Event renders performance impossible or unlawful.
• Hardship: Event makes performance excessively burdensome, but not impossible.

In some legal systems (especially civil law jurisdictions), hardship clauses may be invoked to renegotiate terms, while common law systems focus on impossibility or frustration of purpose.

Tariffs and Supply Chain Disruptions

What Are Tariffs?

Tariffs are government-imposed duties on imported or exported goods. They can be:

• Specific Tariffs: Fixed fee per unit
• Ad Valorem Tariffs: Percentage of the product’s value

Tariffs serve a variety of policy goals:

• Protect domestic industries
• Retaliate against unfair trade practices
• Generate government revenue

However, tariffs can drastically affect the cost and feasibility of contractual performance, especially when imposed retroactively or without sufficient notice.

How Tariffs Disrupt Supply Chains

Sudden tariffs can:

• Increase production or import costs overnight
• Force businesses to change suppliers or reroute logistics
• Render existing contracts unprofitable or legally difficult to perform
• Lead to canceled shipments, penalties, or delays

Industries especially vulnerable include electronics, automotive, pharmaceuticals, agriculture, and steel.

Can Tariffs Trigger Force Majeure?

General Considerations

Tariffs may trigger force majeure only under specific conditions, and courts or arbitral panels assess claims based on:

1. Contractual Language: Does the clause explicitly mention “government actions,” “tariffs,” or “changes in law”?
2. Foreseeability: Was the tariff foreseeable at the time of contracting?
3. Causation: Did the tariff directly cause the failure or delay in performance?
4. Mitigation: Did the affected party try to mitigate the effects (e.g., find alternate suppliers)?

Example Clauses

Some contracts contain tailored language such as:

“Force majeure shall include… government actions, new tariffs or trade restrictions, and any sudden imposition of customs duties that materially impact performance.”

Such specificity increases the likelihood of successful invocation.

Judicial and Arbitral Perspectives

U.S. Courts (Common Law Approach)

In the U.S., force majeure is not implied by law—it must be expressly stated in the contract. Courts typically enforce the clause strictly and look for:

• Explicit reference to the disruptive event
• Proof that performance became impossible (not just more expensive)

Case Example:
In Kel Kim Corp. v. Central Markets, Inc., the New York Court of Appeals held that financial hardship, even from regulatory changes, does not constitute force majeure unless specifically included.

Civil Law Jurisdictions

Countries like France or Germany recognize force majeure under their civil codes and are more flexible in applying the doctrine, especially when a governmental act like a tariff materially alters performance.

International Arbitration

Tribunals under ICC or UNCITRAL often apply a balanced approach:

• They consider industry norms
• Assess commercial reasonableness
• Examine the impact of tariffs on the entire contract

Case Study: A Singapore arbitral panel held in 2021 that sudden export tariffs imposed by India on pharmaceutical ingredients triggered a force majeure clause, allowing partial non-performance.

Contractual Best Practices

To reduce ambiguity and improve enforceability of force majeure claims, businesses should:

1. Use Detailed Clauses

Include references to:

• “Government regulations”
• “Tariff changes”
• “Import/export restrictions”
• “Sudden legal obligations”

2. Define Scope and Remedies

Specify what happens:

• Suspension of obligations?
• Termination rights?
• Notice periods?

3. Address Foreseeability

Indicate whether evolving trade policies are deemed foreseeable or not.

4. Pair with Hardship Clauses

Hardship clauses allow renegotiation rather than termination—especially useful for tariff-induced economic burdens.

Mitigating Tariff Risk

1. Diversify Supply Chains

Avoid over-reliance on a single country or tariff-prone region.

2. Use Tariff Engineering

Alter product classification to minimize duty impact (legally).

3. Purchase Trade Insurance

Political risk insurance can cover losses due to sudden tariff barriers.

4. Monitor Trade Policy

Establish early-warning systems and legal tracking of trade legislation.

Renegotiation and Commercial Solutions

When force majeure fails, businesses can still seek amicable solutions:

• Renegotiate terms (e.g., cost-sharing of tariff increases)
• Adjust delivery timelines
• Invoke mediation or alternative dispute resolution (ADR)

Many suppliers prefer renegotiation over litigation to preserve long-term relationships.

Force Majeure During Trade Wars

The U.S.–China Trade War (2018–2020)

• Tariffs were imposed rapidly and escalated with little warning.
• Many businesses tried to invoke force majeure in response to cost spikes.
• Courts and arbitrators looked skeptically at claims, often ruling that such events were foreseeable due to ongoing diplomatic tensions.

Key Lesson: When trade tensions are already public, tariffs are less likely to be deemed unforeseeable.

CISG and International Contracts

The United Nations Convention on Contracts for the International Sale of Goods (CISG) provides a default rule on impediments:

“A party is not liable if he proves that the failure was due to an impediment beyond his control…” (Article 79)

This provision functions similarly to force majeure, and tribunals interpreting CISG often allow for non-performance due to unforeseeable tariffs, especially when governmental action was abrupt and beyond the seller’s control.

Conclusion

Tariff-driven supply chain disruptions present complex legal and commercial challenges. While force majeure is a potentially powerful defense, it is not a guaranteed escape hatch. Success depends on:

• Careful contract drafting
• Clear causation between tariffs and performance failure
• Jurisdictional context and foreseeability

Businesses should take proactive steps, not just in contract design but also in risk management, to insulate themselves from sudden shocks in global trade. Combining strong legal safeguards with flexible commercial strategies is the best way to ensure supply chain resilience in an era of rising trade protectionism.

Did you find this article worthwhile? More engaging blogs and products about smart contracts on the blockchain, contract management software, and electronic signatures can be found in the Legitt AI. You may also contact Legitt to hire the best contract lifecycle management services and solutions, along with free contract templates.