Can a Force Majeure Clause Excuse Performance Under a Contract Due to Tariff Costs?

It is important to plan for the unexpected in life, and your business is no different. Recently, we are seeing clients request advice on how to navigate the tariff policies of the Trump Administration, which may have an adverse impact on contracts negotiated before any price escalation driven by tariffs. In these situations, the first place to turn is often the contract itself.  Many businesses specifically look to the “force majeure” clause for relief. 

A force majeure clause is a contractual mechanism to allocate risks of non-performance when certain unforeseen events arise beyond the control of the parties involved. Legally speaking, the force majeure clause operates to excuse a party from performing a contract under an agreed set of extreme triggering circumstances. Common events listed in these clauses include war, strikes, acts of God, natural disasters, government orders, and (more recently) pandemics.  

In theory, a force majeure clause sounds like an ideal contractual refuge against geopolitical events such as tariff-induced increases in prices/costs. Unfortunately, much depends on how they are drafted and other factors.  Courts often analyze force majeure clauses by a “plain reading” of the contractual language. In this kind of reading, the courts strictly construe force majeure clauses to the instances specified in the list of triggering events. Thus, if the clause does not refer to tariffs, then it might be read not to apply.  Furthermore, even if the event is specifically listed, a court will also often require the event to (1) be out of the control of the impacted party and (2) prevent performance of the contract. This is a high bar, and difficult to meet.  As a result, many courts have ruled that simple changes in economic conditions are not sufficient to excuse performance of a contract.  Thus, relying solely on a force majeure clause to try to address price increases caused by new tariffs is likely to be difficult.  

Although they might not stand up to court scrutiny as a means to modify agreed pricing terms, force majeure clauses can be part of an overall business and legal discussion if parties choose to renegotiate their existing agreements.  If tariffs are likely to impact your business, it is important to consult an experienced attorney to review your contract in its entirety, including the force majeure clause. Legal counsel can help interpret the clause and assist in restructuring contracts to better address current price pressures and plan for future challenges. This proactive approach can help ensure that your business is better in a better position to plan for the unexpected moving forward.