On April 2, 2025, the Trump administration announced a series of reciprocal tariffs, significantly impacting various global industries. These measures included a 25% tariff on auto imports, an additional 10% tariff on Chinese imports, and a 25% tariff on steel and aluminum. Furthermore, a 25% tariff was imposed on all products from Canada and Mexico not covered by the U.S.-Mexico-Canada trade agreement. While a 90-day pause was implemented for most tariffs, China faced an increased tariff rate of 145%, reflecting heightened tensions and leaving Chinese-origin products vulnerable to higher duties, delays, and scrutiny.
While the focus is largely on the directly affected sectors like automotive, metals, and electronics, these reciprocal tariffs will likely indirectly affect all businesses in the form of increased technology costs. Businesses are increasingly reliant on third-party vendors to provide business functionality and host the necessary data in a cloud environment. Cloud environments are hosted in data centers that are physical structures, constructed with the same raw materials as any other physical structure, like timber/lumber and copper, now facing potential tariffs of 15-20% and 25%, respectively. Additionally, data centers contain physical hardware made up of metals, such as steel and aluminum, which are already subject to a 25% tariff. These costs are likely to be passed downstream: first to cloud service providers (AWS, Microsoft Azure, and Google), then to software vendors, and ultimately to the companies that license or subscribe to their services. Technology buyers — including legal, procurement, and IT teams — must prepare for this cascading cost exposure.
Strategies to Mitigate Tariff-Driven Cost Increases
Pricing Provisions
The most important action is ensuring that the pricing provisions in technology contracts expressly state that the costs are fixed for, at minimum, the initial term. If pricing is per user or other use metric, that pricing should also be expressly locked.
Force Majeure Clauses
If the force majeure clause includes changes in laws, companies should expressly carve out legal changes that affect the vendor’s cost of providing the service. This provision should be narrowly tailored to only cover events that cause delays or failures in performance, such as natural disasters or political upheaval. It should not encapsulate economic difficulties, as this could allow parties to terminate a contract due to rising performance costs.
Changes in Law Provision
The approach to addressing this provision is dependent on leverage. Companies should examine clauses that allow vendors to make modifications “to the service” due to changes in law.
- Buyers with significant leverage: Expressly state that the right to modify the service does not extend to a right to revisit pricing at the contract or unit level absent the addition of material and new functionality
- Buyers with equal leverage: Proactively negotiate and agree on the allocation of risk associated with a change in law. For example, include a clause stipulating that if the cost of providing services rises above a predetermined amount or percentage, the parties will allocate the additional and documented expenses in an agreed proportion.
- Where the vendor has the leverage: At minimum, seek to include a clause that requires both parties to negotiate in good faith when a change in law arises.
- This may be of limited effectiveness if there are a small number of alternative suppliers or if the vendor provides mission-critical services.
- If an agreement cannot be reached, include the right to terminate without penalty and obligate the vendor to assist in moving the functionality to a new vendor or in house.
For added protection, buyers should seek to uncap or create a higher liability cap if a vendor intentionally breaches the contract (i.e., efficient breach).
Indemnification
Buyers should also take a second look at their indemnification provisions. Review these provisions carefully to ensure they are tied exclusively to third-party claims. Indemnification triggers should also be limited to violations of law by a company, it should not be tied to mere changes in law or violations in law by the vendor.
Proactive Risk Management Is Key During an Era of Uncertainty
While the immediate effects of current global trade dynamics are most visible in industries such as automotive, electronics, and raw materials, the effects on the technology sector and service providers are equally significant. Companies that take the time to audit their supply chains, fortify their technology contracts, and stay attuned to policy developments will be far better positioned to weather disruptions and maintain operational resilience in the face of fluctuating global trade pressures.
