What Every Multinational Company Should Know About … The Current Trump Tariff Proposals (June 2025 Update)

Less than five months into the new administration, we have already seen more than 50 tariff proclamations. With new tariffs being proposed, imposed, revoked, suspended, and sometimes reimposed, it can be difficult for importers to keep up with all the proclamations. So, as an aid to the importing community, we have put together an “evergreen” tariff article, which contains three key items for importers:

A summary of the key tariffs and tariff proposals, including their current status[1] and the key issues for each.
A list of resources for importers looking for aids to cope with tariff and international trade uncertainty; and
A list of the most common questions we are receiving from clients regarding the new tariffs and their implementation.

We also note that on May 28, 2025, the U.S. Court of International Trade struck down many of the new Trump tariffs (i.e., those based on the International Emergency Economic Powers Act (IEEPA)), ruling that they exceed the president’s legal authority. Commerce Secretary Lutnick recently emphasized that “tariffs are not going away,” citing multiple statutory authorities available to maintain them. The Trump administration has already appealed the CIT’s decision to the U.S. Court of Appeals for the Federal Circuit and has obtained a stay. Our expectation is that these tariffs will stay in place until the U.S. Supreme Court rules on it, which will take time to occur. We also anticipate that the Trump administration will likely launch investigations to support alternative bases for the IEEPA tariffs, including under Section 232 and Section 301. We will be regularly updating these resources to reflect new tariff proposals and modifications, which are in some cases being updated or changed daily.

Where Are We on the Various Tariff Announcements?

The state of play for each tariff is as follows:

Bucket 1: Chapter 1-97 Pre-Existing Tariffs

What Are They? The first set of tariffs are the “normal” tariffs that have existed for decades.
Are they Permanent? Yes.
How Much Are They? Generally, in the range of 0%–7%.
Do They Stack? These tariffs are the starting point for stacking, as all tariffs are added to these initial normal tariffs.

Bucket 2: Global 10% Tariffs

What Are They? The “price of entry” for selling to the United States.
Are They Permanent? Unlikely to be negotiated away, with the possible exception of Canada and Mexico as part of USMCA review.
How Much Are They? 10%.
Do They Stack? Yes, the global tariffs stack on top of the Chapter 1-97 tariffs.

Bucket 3: Reciprocal Tariffs

What Are They? Tariffs against the entire world, based on the level of trade surpluses with the United States.
Are They Permanent? Currently suspended for country-by-country negotiations. They are likely to return but at lower, negotiated levels.
How Much Are They? Up to 50%.
Do They Stack? The reciprocal tariffs stack on top of the Chapter 1-97 tariffs. The announced reciprocal tariff rates include the 10% global tariff. The reciprocal tariffs, however, carve out any goods that are subject to any Section 232 sectoral tariffs, making the reciprocal and sectoral tariffs an either-or set of tariffs.

Bucket 4: China Tariffs

What Are They? The fourth set of tariffs comprises those imposed specifically against China, which include both the global and reciprocal tariffs and additional, China-only tariffs. Thus, calculating the total tariffs on China requires adding up the following tariffs:
- Section 301 Tariffs: The first China-specific tariffs were imposed on Chinese-origin goods in the first Trump administration. About half of trade with China is exempt from these tariffs (the so-called “List 4B”); the other half of imports from China pay a tariff of between 7.5% and 25%. These tariffs stack on top of the Chapter 1-97 tariffs. These tariffs are carryovers from the first Trump administration and continued through the Biden administration, and thus are likely permanent unless negotiated away as part of the current negotiations with the Chinese government (unlikely).
- IEEPA 20% China Tariffs: The second China-specific tariffs are the 20% tariffs relating to what the Trump administration characterizes as the Chinese government’s failure to halt the shipment of fentanyl precursors used to support the export of fentanyl into the United States. These tariffs are not currently paused and stack on top of the Chapter 1-97 and the Section 301 tariffs. There is some chance that these tariffs will be diminished or removed based on the progress in negotiations and perceptions of the administration regarding whether China has taken sufficient steps to address concerns relating to the export of fentanyl precursors. The fentanyl tariffs stack on top of the Chapter 1-97, Section 301, and global tariffs. These tariffs are not paused and are likely to be permanent.
- Reciprocal Tariffs: The fourth set of China tariffs are the reciprocal tariffs. After China retaliated against the U.S. tariffs, the Trump administration raised the China IEEPA reciprocal tariff to 125% (which includes the 10% global tariff). The reciprocal tariffs stack on top of the Chapter 1-97, global, and Section 301 tariffs. The China reciprocal tariffs are currently paused and are subject to negotiations with China. It is likely that these tariffs will return at the end of the 90-day pause period, albeit at a lower negotiated rate.
- Total China Tariffs/How They Stack: Thus, all China-origin goods have a tariff rate of 145%. These goods are still subject to the original Section 301 tariffs, which means the stacked tariffs on Chinese-origin goods range from 145% to 170%, plus the normal Chapter 1-97 tariff rates for the specific product. With the paused reciprocal tariffs, the current baseline is the Chapter 1-97 tariffs, plus the global 10% tariff and the 20% fentanyl-based tariff, with the addition of any applicable Section 301 tariff.

Bucket 5: Section 232 Sectoral Tariffs

The fifth set of tariffs are the sectoral tariffs imposed under Section 232 on specific products.

What Are They: These sectoral tariffs currently include steel and aluminum tariffs (50% as of June 4) and the automotive(25%) sectoral tariffs, with the latter currently suspended for USMCA-compliant goods. Because the sectoral tariffs are either-or with the reciprocal and global tariffs, where these tariffs apply, they replace those tariffs.
Future New Sectoral Tariffs: The administration has announced or clearly telegraphed new Section 232 investigations covering medium- and heavy-duty trucks and parts; copper and derivative products; critical minerals; lumber and timber; aircrafts, jet engines, and parts; pharmaceutical; and semiconductor goods.
Expansion of Sectoral Tariffs: For Section 232 tariffs currently in place, the administration has announced there will be opportunities for U.S. producers to request additional derivative tariffs.
How They Stack: Where the Section 232 tariffs apply, the global and reciprocal tariffs do not. Thus, they stack on top of the normal Chapter 1-97 tariffs. For China, they stack also on top of the 20% fentanyl-based tariffs and the Section 301 tariffs.

Bucket 6: IEEPA 25% Canada and Mexico Tariffs

The last set of tariffs are the 25% tariffs imposed on Canada and Mexico, relating to what President Trump characterizes as those countries’ insufficient efforts to halt the flow of fentanyl and unauthorized immigrants into the United States. These tariffs are suspended for any goods that are USMCA-compliant.

What Resources Are Available To Help Cope with Tariff and International Trade Uncertainty?

To help importers cope with the unpredictability of the current trade environment, Foley’s International Trade, Supply Chain, and False Claims Act Teams offer focused, practical resources to help manage international trade. These include:

Tariff & International Trade Resources: The Foley Tariff & International Trade Resources page includes information to help multinational companies understand the rapidly changing international trade world, including many resources to help companies understand and navigate the rapidly changing tariffs and their impact on international supply chains.

White Papers: Our companion white papers on “Managing Import and Tariff Risks During a Trade War” and “Managing Supply Chain Integrity Risks” provide practical advice to help importers identify and manage rising tariffs and the risks arising from supply chain integrity issues such as forced labor, human trafficking, and the Uyghur Forced Labor Prevention Act.

Article Series: Our biweekly articles on “What Every Multinational Company Should Know” discuss pressing international trade topics, including the key tariff proposals. You can view all articles in that series, sortable by topic, at our Tariff & International Trade Resources page. You can sign up to receive notices of upcoming biweekly emails by clicking here to register.

Presidential Transition Hub: To provide practical advice on dealing with all aspects of the rapid-fire announcements from the new administration, Foley has set up a 100 Days and Beyond: Presidential Transition Hub for frequent legal updates on new administration announcements as they occur. You can register to receive updates there as well.

Service Offerings

Customs Audit and Supply Chain Integrity Review: Our International Trade and Supply Chain teams can provide a Customs Audit and Supply Chain Integrity review, which provides a thorough assessment of the state of your customs compliance and whether there are unaddressed risks that your company needs to address to avoid unwanted Customs scrutiny of your imports. More details here.

Contract Reviews for Tariff Concerns: Foley’s Supply Chain Team can leverage AI to assist with assessing your key supplier agreements for key provisions related to which party bears the costs of tariffs, including delivery terms and pricing terms.

Veelgestelde vragen

After presenting at numerous seminars and webinars, and in discussions with clients, we have noticed certain recurring questions. To aid the importing community, we have compiled a list of these, which include the following:

General FAQs

Do the tariffs stack? Yes, all tariffs stack, with the exception of the Section 232 sectoral tariffs and the global/reciprocal tariffs, which are either-or. The full stacking details are above. In addition, if the product is covered by an antidumping or countervailing duty order, then those duties also stack.

Is the stacking compounded? No. The tariffs add up without compounding. If both a 20% and a 25% tariff apply, the result is a 45% increased tariff.

Are you seeing clients pursue a China +1 strategy to cope with the new tariffs? Yes. Many clients have been pursuing a strategy of adding additional capacity outside of China since the imposition of the original Section 301 duties. These efforts appear to be accelerating, as there is a growing realization that high tariffs for China are the new normal. In this regard, it is important to note the original Section 301 tariffs remained in place even under the Biden administration. Further, China is likely to see the greatest amount of increased tariffs under the reciprocal tariff proposal because it hits so many categories — it heavily subsidizes its industries, it has been tagged as a currency manipulator by the Department of Treasury for years, and there are numerous countervailing duty findings by the Department of Commerce that provide a clear roadmap to identify subsidy programs.

One caution is that when companies move production out of China, they often continue to use Chinese-origin parts and components. Companies pursuing this strategy need to do a careful analysis to ensure they are “substantially transforming” the product by doing enough work and adding enough value in the third country to create a new and different article of commerce with a new name, character, or use, thus giving it a new, non-Chinese country of origin.

Will there be exceptions for goods like medical devices in the proposed tariffs? Medical devices that fall under Chapter 98 continue to maintain duty-free status under the Nairobi Protocols. Whether further exceptions will be granted is unclear, as the tariffs have veered toward being universal due to concerns that exceptions (like those granted for steel and aluminum under the original sectoral tariffs) tend to undermine the efficacy of the new tariff measures. As a result, one purpose of the aluminum and steel tariff announcement was to wipe out the list of accumulated product-specific exceptions that had grown over the years. These factors work against an announcement of tariff-specific exceptions.

Will there be exemptions for goods being imported for use in the U.S. defense industry? How about shipments to the Department of Defense? At this time, there is no such exemption nor any indication that such an exemption is in the works.

Are there any discussions relating to potential tariff relief for other sectors? So far, the only somewhat industry-specific reprieve has been the lifting of tariffs on USMCA-compliant goods, first for the auto manufacturing sector and then in general. If discussions regarding tariff relief for other sectors are occurring, they have not been announced.

Will the executive orders on tariffs be challenged in litigation? Challenges on behalf of private companies and by states such as California already are filed. But in general, the Court of International Trade and the Court of Appeals for the Federal Circuit tend to defer to the executive branch in matters of international trade policy. Also, the imposition of special tariffs in the first Trump administration were generally upheld by the trade courts. It is almost certain that the core issue of whether the president can broadly expand the definition of a ”national emergency” to support universal tariffs without action of Congress will be decided by the U.S. Supreme Court.

Have you heard of any plans to change Foreign Trade Zones (FTZ) laws? In general, no. Specific tariff announcements, however, have contained provisions relating to the FTZs, including that any goods that go into FTZs need to enter in “privileged foreign status.” This means the duty rate is fixed at the time the goods enter the zone, meaning even if the goods are further manufactured within the FTZ, the duty will be based on the original classification when they entered the FTZ.

Reciprocal Tariff FAQs

What are reciprocal tariffs? As originally announced, “reciprocal tariffs” were intended to equalize tariff rates, such as when a foreign country imposes a higher tariff on the United States than the United States does for the same product category. As actually announced, however, the reciprocal tariffs are almost completely based upon the relative trade deficit with individual countries.

Nonetheless, the original concept of the reciprocal tariffs is being applied in tariff negotiations and could work out in several ways. First, because the United States generally has low tariffs, this could mean that there are many opportunities either for U.S. HTS subheadings to increase or for comparable foreign HS subheadings to be reduced, with the impact varying by country. Second, because the announcement of the coming reciprocal tariffs states that it will take into account any form of discrimination against U.S. companies or programs that favor foreign companies, final reciprocal tariffs could remain quite high even if negotiated down. For example, most countries have Value Added Taxes that rebate any VAT payments when goods are exported. The Trump administration has indicated that this would be considered a form of subsidy that should be counteracted with reciprocal tariffs. Similar reasoning applies to subsidized electricity, currency manipulation, and so forth. Adding these concepts on top of equalizing tariffs across HTS categories could lead to major increases in tariffs — or major reductions in foreign tariffs or trade barriers. The final result awaits the announcement of the results of tariff renegotiations.

When will the negotiated rates be announced? The 90-day reciprocal tariff pause was announced on April 9, 2025 putting the 90-day mark at July 9, 2025. The Trump administration has indicated that it will start with major trading partners with large trade deficits, making it likely that many smaller trading partners will be given an additional 90-day extension to allow negotiation down the line.

Do the tariffs apply based on where the product comes from or the country of export? Tariffs are determined by the country where the product was originally made or where it was last substantially transformed, not the country of export. So, if an item is manufactured in China but sent to Vietnam, the importer still pays the Chinese tariffs. The same is true if it undergoes only a moderate amount of processing and is not substantially transformed in the third country. Importers relying on a China +1 strategy need to be certain they are correctly analyzing the substantial transformation requirements to properly claim tariffs based on the country of final manufacture.

If my product includes U.S.-made components, do I get a tariff discount? Potentially yes. If at least 20% of the product’s value comes from U.S.-origin parts and components (either fully produced or substantially transformed domestically), then only the portion of the product that is not U.S.-origin is subject to the reciprocal tariffs.

Are there any items excluded from these tariffs? Several categories of goods are excluded:

Any goods subject to Section 232 tariffs — even if the goods are currently only under investigation — are excluded, because the carveout includes future Section 232 sectoral tariffs. This includes specific goods like certain types of copper, lumber, pharmaceuticals, and semiconductors, and products detailed in Annex II to the reciprocal tariffs.
Items covered under 50 U.S.C. § 1702(b), such as personal communications, donations, and personal baggage, are excluded.
Products from countries with which the U.S. lacks normal trade relations (Belarus, Cuba, North Korea, and Russia), which are already covered under high Column 2 rates, are excluded.
Energy products and critical minerals that are not sourced domestically are excluded.

Can importers claim duty drawback for the reciprocal tariffs? Yes. Duty drawback allows importers to reclaim up to 99% of duties paid if items do not remain in the U.S. Customs territory because they either were later exported or destroyed. Unlike certain other tariff proclamations, such as the Section 232 aluminum and steel tariffs, the reciprocal tariff proclamation does not specify whether the reciprocal tariffs qualify for duty drawback. However, CBP on April 8, 2025, instructed that drawback is available for reciprocal tariffs.

Are Chapter 98 imports affected by the new tariffs? In most cases, no — favorable Chapter 98 treatment still remains. But there is an exception for Chapter 98 as applied to goods exported for repair/processing and brought back. Here, the tariffs apply only to the foreign work’s value. At the same time, if the work performed abroad includes U.S.-origin parts and components, the tariffs apply only to the non-U.S. portion of the final value.

What about Foreign Trade Zones (FTZs)? Goods with U.S. origin or already-imported goods given “domestic status” under 19 C.F.R. § 146.43 remain unaffected. But beginning on April 9, 2025, any imported goods entering an FTZ are treated as having “privileged foreign status” under section 146.41, which means that the tariff rate that applied at the time of entry is locked in, even if the good is further manufactured or altered after it enters the FTZ.

Steel and Aluminum Tariff FAQs

How have the Section 232 aluminum and steel tariffs changed from the original 2018 version?

The aluminum tariffs increased from 10% to 25%.
All negotiated tariff-rate quotas for the EU, Japan, and the United Kingdom, as well as the quotas negotiated with Argentina, Brazil, and South Korea, are no longer applicable. The previous exemptions for Australia, Canada, Mexico, and Ukraine no longer apply.
All product-specific exemptions that had been granted under the original aluminum and steel program are revoked.
The “derivative articles list” is considerably expanded.
On June 4, the Section 232 tariffs on steel and aluminum increased to 50%.

Are Chapter 72 articles still subject to Section 232 tariffs? Yes. Certain headings in Chapter 72 that were previously subject to the original Section 232 tariffs are still covered. All exclusions that previously applied to certain Chapter 72 products are now revoked.

Are iron products covered? Based on the description of the covered products in the Executive Orders, carbon alloy steel products — not iron — are covered by the exclusions.

How should we treat imports that fall under the “derivative articles” HTS codes but do not actually contain any aluminum or steel? In some cases, certain HTS classifications on the derivative aluminum and steel HTS classifications cover types of products that may not contain any aluminum or steel. For example, certain types of metal furniture are covered, but if these are made out of a metal other than steel, then they would not be covered even though they fall within an HTS that is listed in Annex 1 of the steel proclamation. In these cases, the foreign producer should include a statement on the commercial invoice, providing that the product does not contain aluminum or steel, to support why the tariffs are not due on the entry.

After the elimination of the product-specific exemptions, are there any remaining exemptions? The only exemption remaining is for derivative articles that are manufactured from steel melted/poured in the United States or aluminum smelted/cast in the United States. For such products, the importer should request a statement on the commercial invoice stating that the product contains aluminum smelted/cast in the United States or steel that was melted/poured in the United States. In case of a Customs inquiry, it would be appropriate to include copies of steel mill certificates or aluminum certificates of analysis in the 7501 Entry Summary packet.

For derivative articles, is the Section 232 tariff paid on the full value of the article? The Executive Orders state that the Section 232 tariff is paid on the “value” of the aluminum or steel “content” of the “derivative article.” There are, however, no instructions as to how this value should be calculated. In accordance with normal Customs requirements, the value should be calculated using a reasonable method that is supportable. This could potentially be based on a calculation from the foreign supplier. Frequent importers of derivative products should monitor CSMS announcements to see if CBP issues instructions on this issue.

Is duty drawback available for the aluminum and steel tariffs? No, the executive orders state that duty drawback cannot be used.

Does Chapter 98 provide relief from the Section 232 aluminum and steel tariffs? The executive orders do not list any Chapter 98 exceptions for the new tariffs. This is consistent with the original Section 232 tariffs, which also did not contain any Chapter 98 exceptions.

Will there be an exclusion process? None has been announced or established. It is unlikely that the Trump administration would wipe out all product-specific exemptions, only to build them back up again.

Could the list of “derivative articles” expand? The executive orders directed the Department of Commerce to establish a process by May 11, 2025, to consider requests to add additional “derivative articles.” The established process opens up two-week comment windows several times a year to allow for such comments. We anticipate that U.S. aluminum and steel manufacturers will aggressively use this process to push for additional excluded derivative products.

Do Chinese-origin steel and aluminum products still face the previous tariffs? Yes. Products subject to Section 232 tariffs — like steel and aluminum — will continue to be charged the original 20% IEEPA tariff. However, they’re exempt from the new Reciprocal Tariffs. So for Chinese steel and aluminum, the total tariff remains 20%, plus the additional Section 232 duties as well.

Automotive & Medium- and Heavy-Duty Truck Tariffs

Why were these tariffs imposed so quickly? The automotive tariffs (which cover passenger vehicles, light-duty trucks like SUVs and pickup trucks, and automotive parts) references a 2019 Commerce Department investigation that concluded foreign auto imports, including their parts and components, pose such a threat to U.S. national security. The Trump administration was able to leverage this determination to issue tariffs without further investigation, picking up on the previous findings detailed in Proclamation 9888 (issued May 17, 2019). Other Section 232 investigations are starting from a clean slate and thus require the completion of new investigations.

Can companies get a refund of duties if they re-export the imported goods? No. These tariffs are not eligible for duty drawback.

Is using an FTZ a viable strategy for these tariffs? Yes. Once the tariffs are in force, all applicable vehicles and parts entering an FTZ must be placed under privileged foreign status, pursuant to 19 C.F.R. § 146.41, unless the items qualify for domestic status under section 146.43.

Do these new tariffs stack on top of others already in place? Yes, except for the reciprocal tariffs. The Section 232 auto tariffs stack on existing duties, including those under Section 301, Section 201 (safeguards), and any Chapter 1-97 tariffs. The global and reciprocal tariffs, however, are either-or tariffs that are carved out by the reciprocal tariff announcement.

Will parts and components be added or subtracted? Yes, to the former; unlikely for the latter. The proclamation instructs the Department of Commerce to establish a process, within 90 days, whereby U.S. producers or industry groups can request additions to the original list of covered HTS subheadings. At this time, there has been no announcement of a means for importers to seek product exclusions.

When will the medium- and heavy-duty sectoral tariffs be announced? This Section 232 investigation commenced on April 23, 2025. Section 232 investigations take 270 days under the statute, which would put the announcement day on January 18, 2026. There are indications, however, that the Section 232 announcements may be made earlier than the full 270-day period.

USMCA/Canada and Mexico Tariff FAQs

How will tariffs effect the IMMEX/Maquiladora imports from Mexico? Because the Maquiladora, Manufacturing, and Export Services Industry (IMMEX) program is a figure of Mexican law, we anticipate Mexico will do all it can to protect companies that operate using the program.

Will the Canada and Mexico tariffs be lifted when the USMCA review occurs? Unclear. We do note, however, that the United States lifted the prior aluminum and steel tariffs as part of the negotiation of the USMCA under the first Trump administration. We anticipate that even though the second Trump administration is taking a much harder line on tariff and international trade issues, that there will be a push for a “Fortress North America” to fend off Chinese goods (including Chinese parts and components), resulting in a form of free trade within the USMCA region while erecting mutually reinforcing walls against Chinese goods. The true result will have to wait for the conclusion of the 2026 USMCA review.

Force Majeure and Surcharges FAQs

The Foley Supply Chain team also has published a set of FAQs regarding contractual issues, which we are repeating here for convenience.

What are the key doctrines to excuse performance under a contract? There are three primary defenses to performance under a contract. Importantly, these defenses do not provide a direct mechanism for obtaining price increases. Rather, these defenses (if successful) excuse the invoking party from the obligation to perform under a contract. Nevertheless, these defenses can be used as leverage during negotiations.

Overmacht

Force majeure is a defense to performance that is created by contract. As a result, each scenario must be analyzed on a case-by-case basis, depending on the language of the applicable force majeure provision. Nevertheless, the basic structure generally remains the same: (a) a listed event occurs; (b) the event was not within the reasonable control of the party invoking force majeure; and (c) the event prevented performance.

Commercial Impracticability (Goods)

For goods, commercial impracticability is codified under UCC § 2-615 (which governs the sale of goods and has been adopted in some form by almost every state). UCC § 2-615 excuses performance when: (a) delay in delivery or non-delivery was the result of the occurrence of a contingency, of which non-occurrence was a basic assumption of the contract; and (b) the party invoking commercial impracticability provided seasonable notice. Common law (applied to non-goods, e.g., services) has a similar concept, known as the doctrine of impossibility or impracticability, that has a higher bar to clear. Under the UCC and common law, the burden is quite high. Unprofitability or even serious economic loss is typically insufficient to prove impracticability, absent other factors.

Frustration of Purpose

Under common law, performance under a contract may be excused when there is a material change in circumstances that is so fundamental and essential to the contract that the parties would never have entered into the transaction if they had known such change would occur. To establish frustration of purpose, a party must prove: (a) the event or combination of events was unforeseeable at the time the contract was entered into; (b) the circumstances have created a fundamental and essential change; and (c) the parties would not have entered into the agreement under the current terms had they known the circumstance(s) would occur.

Can we rely on force majeure (including if the provision includes change in laws), commercial impracticability, or frustration of purpose to get out of performing under a contract? In court, most likely not. These doctrines are meant to apply to circumstances that preventperformance. Also, courts typically view cost increases as foreseeable risks. Official comment of Section 2-615 on commercial impracticability under UCC Article 2, which governs the sale of goods in most states, says:

“Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance, is within the contemplation of this section. (See Ford & Sons, Ltd., v. Henry Leetham & Sons, Ltd., 21 Com. Cas. 55 (1915, K.B.D.).)” (emphasis added).

That said, during COVID and Trump Tariffs 1.0, we did see companies use force majeure/commercial impracticability doctrines as a way to bring the other party to the negotiating table to share costs.

May we increase price as a result of force majeure? No, force majeure typically does not allow for price increases. Force majeure only applies in circumstances where performance is prevented by specified events. Force majeure is an excuse for performance, not a justification to pass along the burden of cost increases. Nevertheless, the assertion of force majeure can be used as leverage in negotiations.

Is a tariff a tax? Yes, a tariff is a tax.

Is a surcharge a price increase? Yes, a surcharge is a price increase. If you have a fixed-price contract, applying a surcharge is a breach of the agreement.

That said, during COVID and Trump Tariffs 1.0, we saw many companies do it anyway. Customers typically paid the surcharges under protest. We expected a big wave of litigation by those customers afterward, but we never saw it, suggesting either the disputes were resolved commercially or the customers just ate the surcharges and moved on.

Can I pass along the cost of the tariffs to the customer? To determine if you can pass on the cost, the analysis needs to be conducted on a contract-by-contract basis. Foley’s Supply Chain team can leverage AI to pull key provisions (including delivery terms, pricing, and taxes) from your contracts and analyze them to see what each contract says about tariff responsibility.

If you increase the price without a contractual justification, what are customers’ options?

The customer has five primary options:

Accept the price increase: An unequivocal acceptance of the price increase is rare but the best outcome from the seller’s perspective.

Accept the price increase under protest (reservation of rights): The customer will agree to make payments under protest and with a reservation of rights. This allows the customer to seek to recover the excess amount paid at a later date. Ideally, the parties continue to conduct business and the customer never seeks recovery prior to the expiration of the statute of limitations (typically six years, depending on the governing law).

Reject the price increase: The customer will reject the price increase. Note that customers may initially reject the price increase but agree to pay after further discussion. In the event a customer stands firm on rejecting the price increase, the supplier can then decide whether it wants to take more aggressive action (e.g., threatening to stop shipping) after carefully weighing the potential damages against the benefits.

Seek a declaratory judgment and/or injunction: The customer can seek a declaratory judgment and/or injunction requiring the seller to ship/perform at the current price.

Terminate the contract: The customer may terminate part or all of the contract, depending on contractual terms.

[1] Please note that the implementation of the various tariff programs remains in flux, and thus the status of these program should be monitored closely. The included table is current as of the date of publication of this article.

If you have questions about this topic, please feel free to reach out to any of the authors or your Foley & Lardner attorney. If you would like to see future updates regarding “What Every Multinational Company Should Know” about operating in today’s complicated international trade world, please sign up for our Tariff & International Trade blog — click here to register.

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