Force majeure in 2026 — do tariffs count?

I run an import business bringing in industrial components from Asia. I have a supply contract with a U.S. manufacturer where I committed to deliver parts at a fixed price through December 2025. When I signed the contract last June, the tariff on these components was 5%. Now it is 25% after the most recent round of increases.

The 20-point tariff increase wipes out my entire margin and then some. I am losing money on every shipment. My contract has a force majeure clause that includes “government actions, sanctions, embargoes, and other events beyond the reasonable control of the parties.” Can I invoke force majeure to renegotiate or exit the contract?

This is one of the biggest contract questions in 2025 and unfortunately the short answer is: probably not. Here is why.

Force majeure traditionally covers events that prevent performance, not events that make performance more expensive. You can still deliver the parts — it just costs you more. Most courts distinguish between impossibility (or impracticability) and mere unprofitability. A tariff increase that erodes your margin is generally considered a commercial risk, not a force majeure event.

Your clause mentions “government actions” which is broader than some FM clauses. Tariffs are technically government actions. But courts have generally held that tariffs, duties, and taxes are foreseeable risks of international trade. The argument that a tariff increase was “beyond reasonable control” is weaker when tariff volatility has been a known risk in the trade environment for years.

That said, there are a couple of potential avenues. If your clause specifically lists “changes in law or regulation” or “government trade restrictions,” you have a stronger textual argument. Also, the doctrine of commercial impracticability under UCC § 2-615 might apply if the tariff increase was truly unforeseeable and fundamentally altered the basis of the contract. But courts set a high bar for that.

That is not what I was hoping to hear but I appreciate the honest answer. So what are my options? I cannot keep losing money on every order for the rest of the year.

Your best option is to negotiate directly with your buyer. Explain the situation honestly. Many manufacturers understand that a 20-point tariff swing is extraordinary and are willing to renegotiate pricing to keep the supply relationship intact. They need your components and finding a new supplier takes time.

For future contracts, I strongly recommend including a price adjustment clause that specifically addresses tariff fluctuations. There is an excellent generator tool at /2025/04/03/price-adjustment-clause-generator-for-tariff-fluctuations/ that can help you draft language tying your pricing to tariff rates so both parties share the risk.

If the buyer refuses to negotiate, you may need to evaluate whether continuing to perform at a loss is cheaper than the damages for breaching the contract. That is a hard business calculation but sometimes the rational move is to breach and pay damages rather than hemorrhage money on every shipment.

I work in trade compliance and I see this constantly right now. A few practical things to consider:

First, verify the HTS classification of your components. Sometimes a slight reclassification can put the product under a different tariff heading with a lower rate. It is worth having a customs broker review your classifications.

Second, look into whether your components qualify for any exclusion processes. The USTR has had exclusion request windows for certain tariff actions and while the process is slow and uncertain, it is worth exploring.

Third, consider whether you can source from a different country. If the tariffs are country-specific, moving part of your supply chain to a non-tariffed country might be more cost-effective than eating the 25%.

I am on the buyer side of one of these disputes with a different supplier. We did renegotiate. Neither side wanted to blow up the relationship over something neither of us could control. We split the tariff increase 50/50 and shortened the contract term so we can revisit pricing quarterly.

If your buyer is reasonable, start the conversation. Come with documentation of the tariff impact and a proposed cost-sharing structure. Most businesses would rather adjust pricing than lose a reliable supplier.