Are US tariffs the next force majeure event for trade and supply relationships?

For years, the US government has pursued protectionist measures, particularly under the "America First" doctrine. In this context, tariffs have been strategically redefined. In early April, the US government significantly increased tariffs on a wide range of product categories – including pharmaceutical products, medicines and medical devices, petroleum products, crude oil and natural gas, as well as cars and other motor vehicles from over 60 countries – only to suspend them again shortly afterward, at least temporarily. The EU announced countermeasures, which were also paused for now. A full-blown tariff conflict is currently ongoing between the US and China. These developments are affecting not only bilateral trade relationships but also global supply chains, commodity markets and inflation trends.

For companies relying on international supply relationships, the current direction of US tariff policy and the resulting increase in economic uncertainty are leading to rising costs, operational challenges and potential legal disputes. These may particularly impact US importers with binding purchase obligations, as well as European exporters who, depending on the agreement, may bear the cost of US tariffs and seek to have them reimbursed by consumers through price adjustments.

This article explores whether, and to what extent, such companies can be released from their delivery obligations or claim relief from additional costs under Austrian law by invoking force majeure.

Tariff increases as a force majeure event?

Following the COVID-19 pandemic and the war in Ukraine, force majeure clauses have become a standard element of supply contracts. But when does a force majeure event exist and do tariff increases fall under this category?

Austrian law does not define the term force majeure, but case law has established the following criteria for such events:

•  Outside origin: The event must not originate from the operational sphere of the contracting parties.
•  Inevitability: The event cannot be prevented, even by exercising the utmost diligence reasonably expected under the circumstances.
•  Extraordinary nature: The event must be unexpected and, therefore, not reasonably foreseeable by the parties at the time of contract conclusion.

According to now widely accepted views, not only acts of war but also economic effects stemming from war or pandemics may constitute force majeure events. A significant change in the legal framework, such as sanctions, also falls within this scope. Thus, import/export restrictions resulting from tariff increases may be treated similarly.

However, in the case of the discussed US tariffs, the criterion of unforeseeability warrants careful examination. Tariff increases were already a controversial topic during Donald Trump's first term in office. By the beginning of his second term at the latest, further tariff increases were to be anticipated, even though the specific details remained – and in part continue to remain – uncertain. A sudden and unforeseeable force majeure event may, however, be argued if abrupt political decisions, such as trade wars or drastic changes in tariff structures, severely impact the economic foundation of an international trade contract.

As a legal consequence, a typical force majeure clause releases the affected party from its contractual obligations and allows termination of the contract. Recently, some clauses also include options for contract adjustment or a duty to renegotiate. The actual options depend on the individual contract provisions; otherwise, general civil law applies.

Statutory provisions

Under Austrian law, the internationally recognised principle of pacta sunt servanda (agreements must be kept) generally applies. Deviating from this principle due to an external event is only permissible in limited circumstances. In connection with US tariffs, the following legal doctrines may be considered:

Subsequent accidental impossibility of performance

Section 1447 of the Austrian Civil Code provides that if the performance of a contract becomes permanently and accidentally impossible after contract conclusion, such as through a force majeure event, both parties are released from their obligations without liability for damages.

Impossibility to perform does not include temporary impossibility or mere commercial impracticality, but economic unaffordability. According to more recent legal opinion, it is sufficient if there is a significant deterioration in a party's economic position or if the costs clearly outweigh the benefit of performance. If fulfilling the contract becomes objectively unreasonable or economically senseless, it can be considered unaffordable. However, just like with force majeure, the unaffordability must not result from the party's own fault and must not have been foreseeable at the time of contract conclusion.

In the context of US tariffs, apart from the issue of foreseeability, whether unaffordability exists depends on the extent of the tariff increases, whether they are deemed prohibitive, and the individual circumstances of the affected party. It must also be assessed if the affected party contractually agreed to assume the tariffs, thereby consciously accepting the risk of such changes. In any case, minor tariff increases are likely to be considered a normal business risk and thus will have no effect. The party invoking unaffordability bears the burden of proof.

In addition to contract termination, legal scholars argue that contract adjustment may be an alternative. Before termination, the affected party should be granted the opportunity to propose an adjustment. However, such adjustment requires mutual agreement and cannot be imposed unilaterally.

Disappearance of the basis of the transaction

The unaffordability of performance is also addressed under the doctrine of the disappearance of the basis of the transaction. This applies when parties entered a contract with certain assumptions about the prevailing business environment, which are later disrupted by unforeseen external events. If continuing the contract would significantly upset the balance of obligations or frustrate the contract's purpose, the legal basis of the transaction may be deemed to have disappeared.

Some legal opinions hold that increased costs due to legal obstacles, such as COVID-19 measures, meet these criteria, allowing the contract to be adjusted if both parties agree. If not, termination may follow. However, this legal doctrine is considered a last resort (ultima ratio), and contractual or statutory risk allocation mechanisms must be exhausted first. Thus, not every disruption qualifies as sufficient grounds for invoking this doctrine.

Due to limited case law and divergent legal scholarship, reliance on the "disappearance of the basis of the transaction" remains a legal fallback.

Solutions and prevention

For ongoing contractual relationships with US trading partners, it is crucial to proactively and thoroughly examine who is responsible for paying US tariffs and which mechanisms for price adjustment and contract modification are contractually agreed upon. Particular attention should be paid to force majeure, hardship (as a subcategory of force majeure clauses) and price adjustment clauses, to enable timely and effective risk mitigation. If needed, the willingness of the other party to renegotiate should be explored. Where renegotiation is not feasible, termination options and supply chain restructuring should be evaluated.

For new contracts, it is essential to include clear provisions regarding delivery and customs duties. Furthermore, including well-drafted force majeure, hardship and price adjustment clauses can provide a safeguard. In particular, force majeure and hardship clauses should explicitly address the risk of tariff increases and allow for legally sound adjustments to changing tariff rates and trade conditions. Even where the European supplier is not responsible for the tariffs, such clauses are recommended – especially when foreign law governs the contract.

authors: Sarah Rosenthaler, Christoph Haid