How to handle tariff uncertainty and navigate negotiations, using effective contract review

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Hint: AI can help

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Global trade dynamics are shifting under the weight of newly imposed tariffs by the United States and other countries. For C-suite executives and legal / procurement teams in the US and Europe, these changes pose a pressing question: How can companies manage and adapt to the surge in trade tariffs while protecting their business interests?

Companies are already feeling the impact of tariff changes. Bloomberg Law reports that firms have been “scurrying to revise commercial contracts to mitigate the damage” from these tariffs. Across industries, from manufacturing to tech to pharmaceuticals, leaders are realizing that adept contract management is as important as strategic sourcing in weathering tariff storms.

We share our perspective on navigating tariff negotiations and contract negotiations in this new environment. It also highlights how ContractKen enables legal and commercial teams to review, negotiate, and amend contracts with unprecedented speed, minimizing tariff exposure and other negative implications.

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‍Why tariffs matter to contracts:

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Tariffs essentially act as sudden cost inflators and risk shifters.

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They can turn a profitable contract into a loss-making one overnight by adding double-digit percentage costs to goods. A 10% or 25% tariff can wipe out profit margins, especially in industries with tight margins. As one analysis noted, in the tech hardware sector a 7% increase in cost of goods from new tariffs (on top of existing inflation) could erode most of the operating income for many companies. In fact, 69% of tech industry executives in a recent survey said new tariffs forced them to adjust their growth strategies. These figures underscore that tariffs are not just trade policy news - they are bottom-line issues that demand executive attention.

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Industries and contracts most affected by new tariffs

While virtually any cross-border commercial agreement can be affected by tariffs, certain industries face outsized impacts due to the nature of their supply chains and contracts. Below are examples of industries heavily hit by recent tariff changes, and how their contracts are under pressure:

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1. ‍Manufacturing & Automotive:  Perhaps no sector feels tariff pain more acutely than manufacturing, especially automotive. Complex supply chains mean many parts and materials cross borders. A 25% tariff on imports of components or raw materials can add billions in costs – the automotive industry alone was estimated to face $60 billion in extra costs from the recent U.S. tariffs on Canada and Mexico. Suppliers and OEMs are now scrutinizing supply contracts to see who pays for these tariffs, often finding that cost responsibility depends on contract terms (not just who imports the goods). Long-term manufacturing contracts that assumed stable trade rules are being reopened to negotiate price adjustments and duty-sharing mechanisms.
2. ‍Aerospace & Aviation: The aviation industry, dealing with high-value aircraft and parts, is directly exposed to geopolitical trade shifts. For example, as of March 2025, any aircraft of Canadian, Mexican or Chinese origin imported into the U.S. is subject to the new country-wide tariffs upon entry. This means aviation contracts – whether for purchasing whole aircraft or critical parts – must account for sudden 10–25% cost swings. Aircraft purchase agreements are being revisited to clarify who bears tariff costs and whether delivery can be delayed or redirected to minimize duties. Lease and maintenance contracts also need contingency language, since tariffs on spare parts or repair services (e.g. if an overhaul in another country now triggers a tariff) can significantly raise operational costs.‍
3. Technology & Electronics: The tech sector’s global supply chain (spanning components, assembly, and distribution across continents) makes it highly vulnerable to tariff regimes. Recent U.S. tariffs on Chinese electronics and components – estimated at around 10% additional cost on many items – have caused hardware makers to overhaul their sourcing and pricing. An industry analysis found a 7% average increase in cost of goods sold for tech hardware companies from the latest tariffs, which could nearly wipe out the slim 5–10% operating margins of PC and server manufacturers. Contracts with suppliers in Asia are being renegotiated to split or reduce these added costs, and distributors are seeking ways to pass some costs downstream. Even high-tech manufacturing and defense sectors, which often operate on long project cycles, are being urged to include robust tariff clauses in contracts to avoid being caught off-guard.‍
4. Pharmaceuticals & Life Sciences: Pharma companies often rely on imported raw ingredients and active pharmaceutical ingredients (APIs), many of which come from countries now facing tariffs. New trade barriers threaten higher costs and potential supply disruptions for drug makers. Experts warn that prescription drug costs will likely rise significantly as a result of tariffs, and supply chains could be disrupted if key materials become cost-prohibitive or delayed at customs. Pharma supply and distribution agreements are now in focus. Contracts may need clauses addressing tariff-related price adjustments or alternative sourcing if, say, a critical API from China incurs a 10% duty. Additionally, regulatory complexity (WTO rules generally keep medicine tariffs low, but bilateral disputes can change that) means pharma legal teams must watch not just costs but compliance – ensuring contracts allow adaptation to any new trade compliance requirements.

Other sectors also face tariff exposure – industrial equipment, consumer goods (apparel, agriculture products), even technology services (if digital trade tensions spark non-tariff barriers).

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In all cases, the common thread is that contracts define who bears the risk. As tariffs upend the cost calculus, companies with flexible, well-negotiated contracts are weathering the storm better than those without.

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Role of precise contract language in tariff relief and risk mitigation

When tariffs hit, the fine print in contracts becomes crucial. Careful contract language can either provide relief from tariff impacts or, if poorly drafted, leave a company fully exposed. Tariffs are essentially a form of government-imposed cost and regulatory change. However, the effectiveness of those clauses depends entirely on how precise and forward-thinking the contract language is.

• ‍Allocate tariff risks clearly: A fundamental step is to explicitly allocate who bears the risk of new tariffs in the contract. U.S. customs law may require the importer of record to pay a tariff at the border, but the contract between parties determines who ultimately absorbs that cost. For example, a supply contract might state that the price is inclusive of all duties, meaning the seller eats any tariffs, or conversely that the buyer will pay any import duties on top of the price. Some contracts even have built-in mechanisms for shifting or sharing unexpected tariffs. Skadden, Arps (a leading law firm) notes that certain contracts “expressly allocate the risk of additional or unexpected costs, taxes, [or] tariffs” to one party – which can result in shifting the tariff burden away from the default importer. Companies should comb their agreements to see if such provisions exist and, going forward, include clear language on tariff allocation in new deals.‍
• Relief Clauses: Force Majeure and Change in Law: Well-drafted contracts may provide avenues for relief when tariffs dramatically alter the deal economics. Bloomberg Law recently observed that force majeure and change-of-law clauses are among the key measures companies are reviewing to avoid bearing the full brunt of sudden 25% price increases. Here’s how these clauses play a role:‍
• Specificity in language matters: The key to all these clauses is precise drafting. Vague or generic provisions might give a false sense of security. As trade lawyers advise, a change-in-law clause or force majeure clause should clearly delineate triggers and remedies. “A vague provision allowing renegotiation due to ‘regulatory changes’ is ripe for dispute,” one analysis warns, urging that the clause define a threshold (e.g. cost increase beyond a certain percentage, or tariffs above a set rate) that constitutes a significant change. The more clearly an event is defined, the more likely the parties will agree on the outcome and avoid legal fights. This level of clarity is part of tariff risk mitigation - essentially doing the negotiating now (at contract drafting time) about what happens if tariffs are imposed, rather than arguing later.

In addition, companies should remember that contractual rights and commercial strategy go hand in hand.

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Even if an agreement technically allows relief (say, a force majeure for a tariff), invoking it might strain a valuable partnership. Thus, many parties use these clauses as leverage to find a mutually acceptable solution (like splitting costs) rather than immediately canceling contracts. The mere existence of well-crafted clauses puts you in a stronger negotiating position when tariff troubles arise.

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Key contract clauses to address tariff risks and common pitfalls

To adapt to the new tariff reality, legal and procurement teams should proactively review certain key clauses in their existing contracts (and ensure new contracts have them). Below is a summary of crucial contract provisions for tariff risk management, along with common pitfalls to avoid:

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‍Incoterms and Duty Allocation:

International Commercial Terms (Incoterms) in a contract determine which party is responsible for import duties and tariffs on goods. For example, DDP (Delivered Duty Paid) means the seller covers all duties, whereas FOB (Free on Board) or CIF (Cost, Insurance & Freight) might leave import duties to the buyer.

• ‍Pitfall: Assuming that tariffs are always the other party’s problem. In reality, the contract’s shipping terms and any special clauses will dictate who pays - not simply who is the importer of record. Companies often overlook embedded Incoterms in POs or standard terms that could stick them with tariff costs. Another pitfall is inconsistent or unclear terms: sometimes a contract will specify an Incoterm but then elsewhere say “Seller to pay all regular duties, Buyer pays any special or additional tariffs,” without defining what counts as “special”. Such ambiguity can lead to disputes when new tariffs hit (one side will argue the tariff is “special” and not their responsibility, the other may disagree).
• ‍Best Practice: Identify the Incoterm in each contract and ensure it aligns with your expectations on tariff burden. Clarify in the contract if there are any exceptions or special cases for duties. If you want flexibility, consider adding a clause that in case of any new tariff above X%, parties will revisit the price or split the cost.

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‍Force Majeure (Unforeseen Events) Clauses:

As discussed, force majeure can potentially cover tariffs but only if carefully drafted.

• ‍Pitfall: Relying on a standard force majeure clause that doesn’t list relevant events. Many existing contracts list things like “acts of God, war, government orders” but courts may not interpret a general “government orders” term to include broad tariffs that increase costs. Also, force majeure typically won’t help if performance is still possible (just more expensive) because it’s meant for impossibility, not loss of profit.
• ‍Best Practice: Review force majeure clauses to see if they include terms like “government action,” “changes in law,” or “trade restrictions.” If tariffs are a significant risk in your industry, negotiate to explicitly include “tariffs or duties imposed by any government after contract execution” as a force majeure event. Even then, consider what the remedy is – automatic excuse of performance, or an obligation to renegotiate? A well-drafted clause might require the parties to confer in good faith to adjust the contract if a tariff beyond a threshold occurs, before allowing termination.‍

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Change-in-Law and Hardship Clauses:

These clauses act as a contractual safety valve when external events upset the original deal balance. A change-in-law clause typically allows renegotiation or termination if a new law or regulation significantly increases costs or makes performance illegal. A related concept, hardship clauses, found especially in civil-law jurisdictions and long-term contracts, provides for renegotiation if circumstances change beyond what the parties reasonably anticipated.

• ‍Pitfall: Not including such clauses at all – which leaves a party stuck with the contract no matter how onerous the new tariffs become. Another pitfall is having language that is too open-ended, leading to fights over whether something is a “material” change or not.
• ‍Best Practice: If your contracts span multiple years or involve cross-border trade, a change-in-law clause is highly advisable. As one legal expert put it, this clause “allows for renegotiation of contract terms if a legislative or regulatory change fundamentally alters the economic balance of the contract,” providing a vital safeguard against sudden trade policy shifts. Make sure to define the trigger clearly – for example, specify that any new tariff or export restriction that increases the cost by more than, say, 10% or that prevents timely performance qualifies as a change in law event. Define the remedies: perhaps the parties will first try to renegotiate in good faith for 30 days, and if unable to reach a solution, either party can terminate without penalty. In high-impact sectors (manufacturing, tech, defense, etc.), change-of-law clauses are becoming nonnegotiable; without them, businesses risk being bound to terms that no longer reflect market realities.

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‍Price Adjustment (Escalation) Clauses:

These clauses allow the contract price to adjust if certain cost factors change (commonly used for commodity price changes, inflation, etc.). In the context of tariffs, a price escalation clause might say that if tariffs on the product or its components increase, the seller can pass through some or all of those costs to the buyer. Or vice versa, if tariffs are reduced or an exemption is obtained, prices will decrease accordingly.

• ‍Pitfall: Fixed-price contracts with no allowance for new taxes or tariffs leave no recourse for the paying party. If your agreement simply locks in the price, a new 25% tariff means one side eats that entire cost increase.
• ‍Best Practice: Build in flexibility for extreme cost changes. Some contracts already have broad “taxes and duties” clauses – check if they cover tariffs and allow adding those costs to invoices. If not, consider adding a tariff rider: e.g. “Prices are exclusive of any new tariffs imposed after the effective date; any such tariffs shall be added to the price or shared equally by the parties.” As one law advisory notes, if a contract lacks an escalation clause, you may have to go back to the table to renegotiate terms when tariffs hit, which can be contentious. It’s wiser to agree on a mechanism upfront.‍

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Termination and Renegotiation Provisions:

In volatile times, having a clear exit or reset option in a contract can be invaluable. Termination for convenience (with notice) or special termination triggers (like if regulatory changes make continuation unviable) can allow a company to stop the bleeding if tariffs render a deal unsustainable. Similarly, clauses that explicitly allow renegotiation upon certain events (sometimes called hardship or material adverse change provisions) can facilitate a restructure of the deal.

• ‍Pitfall: Many contracts, especially older or simpler ones, lack any termination option except for breach. That means unless the other party agrees, you’re locked in, tariff increases and all. Or, if there is a clause, it might be one-sided (favoring only one party).
• ‍Best Practice: Evaluate if your critical contracts have a termination clause that could be invoked due to tariff-related issues. Some contracts allow termination if costs increase beyond a set percentage or if a change in law persists for a period of time without resolution. If not, you might negotiate an amendment to add a mutual termination right if trade barriers make the contract no longer viable. At minimum, consider adding a requirement that parties meet and confer to adjust terms in good faith if such an event occurs – it’s not a full escape, but it paves the way for a negotiated solution. As one legal insight notes, having hardship clauses or renegotiation mechanisms provides flexibility in an uncertain trade environment, and if your contract lacks them, an amendment could be wise.

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It helps with extraction (from your contract repository), curation, management, tagging (as preferred, fallback, etc.), commenting and controlled access. Additionally, we have populated 700+ commercial contracting clauses examples for use out-of-the-box. Each clause is enriched with attributes like Jurisdiction, Type of Contract, Party Favored, etc.

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Strategies for navigating tariff negotiations and contract adjustments

Beyond the contract clauses themselves, companies need a game plan for tariff negotiations and for adapting existing agreements. “Tariff negotiations” in this context means the discussions and maneuvers companies engage in to mitigate tariff impacts – whether negotiating with suppliers, customers, or even lobbying governments for relief. Below are key strategies that C-suites and procurement leaders should consider a tariff response action plan:

1. Rapid Contract Portfolio Review:
   Quickly assess all contracts impacted by new tariffs. Prioritize high-risk deals (high-dollar contracts or thin margins) to identify tariff-related clauses (duties, taxes, force majeure). Use AI tools like ContractKen to speed this process and pinpoint contracts needing immediate action (renegotiation, price adjustments, termination risk).
2. Proactive Counterparty Dialogue:
   Engage early with suppliers, customers, and partners to collaboratively manage tariff impacts. Present data-backed arguments, signal contract provisions (force majeure/change of law), but focus on commercially practical solutions—shared cost burden or adjusted terms—to avoid disputes.
3. Seek Government Exemptions:
   Actively pursue tariff exemptions through official channels and leverage legal expertise to file exemption requests. Stay connected with industry groups lobbying for tariff relief and assign someone to track government deadlines and submission requirements.
4. Diversify Supply Chains:
   Rapidly evaluate alternative sourcing locations and suppliers unaffected by tariffs. Adjust short-term shipment timing to minimize immediate tariff impact. Convene a cross-functional "Tariff Task Force" (procurement, supply chain, legal, finance) to quickly strategize and implement supply adjustments.
5. Negotiate Cost-Sharing and Price Adjustments:
   Negotiate with suppliers and customers to share or adjust tariff costs. Clearly document amendments—like tariff surcharges or revised pricing formulas—ensuring enforceable agreements. Provide transparent data illustrating tariff impact to facilitate smoother negotiations.
6. Strategic Cost Pass-Through:
   If unavoidable, strategically pass tariff costs to end customers through incremental price increases or temporary surcharges, carefully weighing market dynamics and competitive positioning.
7. Contract Amendments & Updates:
   Formalize all tariff-related adjustments through signed contractual amendments or addenda. Institutionalize learnings by updating standard contract templates and negotiation playbooks to proactively manage future tariff scenarios.
8. Continuous Monitoring Framework:
   Establish an ongoing tariff management system—monitoring trade developments, scenario planning, and ensuring continuous compliance and response readiness. Maintain a dedicated cross-functional team for swift action as tariffs evolve.

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AI-driven contract analysis and support for tariff negotiations

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In the face of rapidly changing tariffs and the flurry of contract reviews and revisions they necessitate, one of the most powerful tools at an executive team’s disposal is Artificial Intelligence (AI) for contract analysis. Modern AI solutions, like ContractKen, are revolutionizing how legal and commercial teams manage contracts, offering speed, precision, and insight at a scale that traditional manual methods cannot match. Leveraging AI in contract negotiations provides a genuine competitive advantage in turbulent times.

‍The Challenge of Volume and Complexity: Large companies might have tens of thousands of active contracts spanning suppliers, customers, logistics providers, and more. Identifying which of those have exposure to a new tariff - and then finding the relevant clauses within each - can be like finding needles in a haystack if done manually. It’s not just time-consuming; it’s prone to human error and inconsistency. Many procurement and legal departments found themselves overwhelmed in early 2025 trying to assess tariff impacts across all their agreements under tight deadlines

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How ContractKen’s AI Copilot Helps: ContractKen is designed to amplify legal and procurement teams’ capabilities by handling the heavy lift of contract review and initial drafting tasks. It can quickly scan and analyze large volumes of contracts to spot critical terms like Incoterms, force majeure clauses, change-in-law provisions, pricing terms, and any mention of duties or tariffs. This means the tool can, within minutes, generate a report of all contracts that lack a tariff clause, or all contracts where your company would be responsible for import duties under DDP terms, etc.

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ContractKen’s AI acts as an intelligent assistant that not only finds and flags issues but also suggests solutions. For example, if a particular supplier contract is missing a change-in-law clause, the AI (drawing from its knowledge base and playbooks) can recommend language to add, perhaps even providing a draft amendment. During contract negotiations, having this AI at your side is like having a tireless junior lawyer or contract manager who never misses a detail. The AI can compare third-party proposed language against your company’s standards and highlight deviations – so if a counterparty slips in a clause that would make you bear all future tariffs (a red flag), it will be caught instantly and brought to your attention for counter-proposal.

‍Consistency is another huge benefit – AI ensures that any amendments you generate use consistent language across all contracts, reducing the risk of loopholes. Humans negotiating contract by contract might inadvertently use different wording; an AI can be trained to apply the approved clause uniformly, acting as a guardrail.

‍Speed and Efficiency: Time is of the essence when tariffs change with little notice. AI dramatically accelerates the contract review and update process. “Modern AI tools can automatically review and suggest contract changes, dramatically reducing the time spent on document review and term negotiation,” as one industry guide notes. Tasks that used to take legal teams weeks - like reading through hundreds of contracts for a specific clause - can now be done in hours or less.

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For example, ContractKen’s system might quickly find that out of 500 supplier contracts, 120 have DDP terms (seller pays duties) and 380 have FOB (buyer pays duties). With that insight, you can focus your renegotiation efforts on the subset that exposes your company to the new tariffs. The AI can even prioritize them by contract value or expiration date, so you tackle the most impactful ones first.

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Additionally, ContractKen integrates with tools like Microsoft Word (as a Word add-in), meaning legal teams can use the AI right in their normal workflow. They can pull up a contract and ask the AI (via a chat-like interface) questions such as, “Does this contract allow price increases for new taxes?” or “Highlight any force majeure clause in this document.” The AI’s natural language processing can handle these requests, pointing the user to the exact sections or answering in plain English what the contract states. This kind of on-demand analysis is invaluable for decision-making in live negotiations.

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‍Risk Mitigation and Quality: Another advantage is reducing oversight. AI doesn’t get fatigued or overlook that one sentence on page 57 of a contract – it will parse everything. This thoroughness means fewer mistakes and surprises. It also ensures that best practices are applied consistently. ContractKen, for instance, allows organizations to maintain a clause library and playbook. If your legal department has decided on the ideal “Tariff Allocation Clause” wording, the AI can automatically flag any contract that deviates from it and suggest conforming language. Over time, this elevates the overall quality of your contracts. In an environment where small differences in wording can mean millions of dollars (as with tariff clauses), that consistency is a competitive edge.

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‍Scenario Planning and Intelligence: AI tools can also assist in scenario planning. You could ask, “Show me the impact if tariffs on X product go to 50% – which contracts would be affected?” The AI can simulate or at least list out which deals involve that product or route. Some advanced systems even integrate external data – for example, linking tariff codes and rates to contracts. So if tariff rates change in a government database, the system could potentially alert you, “10 contracts will see cost increase by 15% based on this change.” This kind of proactive intelligence allows executives to act fast. Essentially, AI can serve as an early-warning system and a strategic advisor, not just a document reader.

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Companies that harness AI for contract negotiations gain agility. They can respond to tariff announcements faster than competitors (who might still be in the manual slog of finding out what the impact is). Deals get renegotiated faster, risk is contained sooner, and opportunities to exploit changes (e.g., quickly adjusting a deal to capitalize on a tariff exemption) are seized. On the flip side, without AI, a company might be weeks behind in understanding its exposure – during which time it might unknowingly commit to unprofitable deliveries or miss the window to renegotiate with a struggling supplier.

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In conclusion: Stay ahead of tariff turbulence with proactive contract analysis

Tariffs will always fluctuate with geopolitical tides, but your contracts shouldn't. Proactive contract management isn't just smart business; it's essential strategy. Embed protective clauses, negotiate agile agreements, and keep your business resilient, no matter how tariffs change.

Turn uncertainty into competitive advantage. With ContractKen’s AI-driven contract analysis, your team can swiftly spot risks, tighten terms, and strategize effectively, freeing you to focus on relationships and growth, not panic-driven amendments.

Don’t let tariffs dictate your business decisions. Take control.