Many UK businesses have been plunged into uncertainty following US President Donald Trump's announcement of trade tariffs on imports from global trading partners.
Trade tariffs have been high on the agenda from the outset of President Trump’s second term, with tariffs already in place on imports from Canada, Mexico and China. On 2nd April – which Trump dubbed ‘Liberation Day’ – a universal tariff for almost all US imports was announced.
As concern about the effects of trade tariffs has grown, Ward Hadaway has been helping UK suppliers to consider the potential impact of tariffs on their customer and distributor contracts.
What are the impacts of trade tariffs on the UK?
The scale of these tariffs initially varied between nations, with higher rates supposed to be representative of trade barriers from other countries against the US. The President has since paused hikes of trade tariffs above the 10% baseline rate – the rate which applies to the UK – for 90 days for all trading partners except China.
This means that goods or services coming from the UK will carry an additional 10% cost for US importers. While this clearly presents an unwanted barrier, there had been fears that tariffs could have been even steeper. The EU, for example, was initially subject to a 20% levy.
Things are more turbulent for the UK’s automotive industry however, with the US administration also imposing a 25% blanket tariff on all car imports, as well as those of aluminium and steel.
What can UK exporters do to prepare?
Both parties tend to be disadvantaged when trade tariffs are imposed, emphasising the importance of proactive dialogue with contractual partners to navigate this new landscape. However, importers may look to either renegotiate, suspend or terminate the contract, unless the contract already stipulates a price change in the event of new tariffs.
Amid continued uncertainty, there are some things to consider now to analyse and potentially mitigate tariff risk:
Notice for convenience
A notice for convenience could be used by a distributor or customer to trigger re-negotiation of the contract, or to simply withdraw from the commitment. These rights are not always straightforward to spot, and understanding the risk of termination and any run-off period, and post-termination effects is critical.
Price re-negotiation clauses
Some contracts may stipulate either automatic or negotiated price adjustments in the event of tariffs being imposed. Review your contract to examine whether any re-negotiation will be required.
Force Majeure
A customer could seek to rely on “force majeure” clauses to suspend performance or mitigate against minimum order quantities. If this clause is in place, it must be examined in detail. This is because there is no general principle of force majeure under an English law contract, and these clauses are interpreted based on the specifics of the language used within them. Whilst it is unlikely that imposition of tariffs would be considered force majeure, this is important to rule out. Distribution agreements which are “pro-distributor” do sometimes try to seek carve outs from meeting minimum purchase obligations in scenarios such as tariff introduction.
Exposure to cost of tariff risk
While import tariffs are generally levied on the importer, it is possible to contractually allocate responsibility for these costs. As a supplier you should consider if you are in any way exposed to the cost of tariff risk based on pricing clauses and delivery terms (including incoterms).
Change process
If force majeure doesn’t apply, a change process in the contract could allow the distributor or customer to seek to re-negotiate elements of the contract which are impacted by tariffs (the most obvious being minimum purchase requirements and forecasting). Change mechanisms are often complex, and so it is important to review these and understand how and when they might be triggered and what the potential impact of a change process is on the contract itself (for example can a customer or distributor exercise a termination right if a change is not accepted).
The importance of being agile
Confirmation of tariff rates for the UK does not necessarily make the situation less fluid. More countries could announce retaliatory tariffs on the US, potentially leading to escalation of a trade war. The UK Government has so far exercised restraint in this regard, but escalation resulting from reciprocal tariffs remains a possibility.
Conversely, President Trump previously announced exemptions and delays shortly after imposing tariffs on Canada and Mexico, and has already revoked many of the significant tariff hikes that had been set out in his 2nd April announcement. The Government is also saying that discussions regarding a trade deal with the US are ongoing, meaning more favourable terms also cannot be ruled out.
As such, the outlook for British exporters to the US could change – for better or for worse – at any time.
If you’re concerned about the impacts of trade tariffs on your business and are looking for legal advice, Ward Hadaway’s specialist commercial lawyers can help. Please get in touch with Matt Cormack for more information or further assistance.
