President Donald Trump’s tariffs on virtually all goods from Canada and Mexico went into effect at midnight on March 4, 2025. The tariffs were effected through an expiry of the extension of the previous executive order (see our February 6, 2025, analysis) and impose 25% tariffs on all goods from Canada and Mexico, with the exception of energy from Canada, which will be tariffed at 10%. (See the White House fact sheet for details.)
An executive order has also been issued increasing the tariffs on goods from China to 20%. Each country has promised retaliatory measures, some of which have already gone into effect. These tariffs threaten to wreak havoc on existing and future contractual and commercial relationships.
Companies whose contracts are affected by these tariffs should consider legal counsel to aid them in understanding their rights and obligations and be prepared to either proactively, or defensively, discuss their impacts with their contractual counterparties. In the face of drastic economic impact, negotiation and consensus may ultimately be achieved but relies heavily on an understanding of the applicable legal framework.
For example, some contracts may expressly allocate the risk of additional or unexpected costs, taxes, tariffs and/or other governmental levies. Depending on the specific contract terms, the new tariffs and/or retaliatory measures could also constitute a “change in law” or a force majeure event. Parties may be able to argue that changed circumstances, frustration of purpose or impossibility means that performance is no longer viable and should not be compelled.
The relevant applicable law may also speak to the legal consequences of the tariffs or any retaliatory measures on the performance of the parties’ obligation. Skadden has experience advising clients on the global implications of their contract regimes where different fora and applicable laws may be at issue.
In the face of a rapidly evolving tariff regime, concerned companies should undertake a review of all relevant contracts to determine how the tariffs will impact their rights and obligations, and that of their counterparties, and whether any specific actions are needed to address the new tariffs.
Companies should also be prepared if faced with assertions from their counterparties that the effect of these tariffs means that performance is no longer feasible or that the burden from such tariffs should be shared or shifted entirely.
See the Executive Briefing publication
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