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Risks and Response Strategies for Cross-Border Purchasers Under the U.S. Imposition of “Reciprocal” Tariffs

创建于04.25

Andy Cui| Partner of Dacheng Qingdao Law Firm

Ⅰ.Introduction

Recently, the escalating tariff war triggered by the U.S. government has posed multiple challenges for cross-border purchasers, including soaring import costs, risks of supply chain disruptions, and frequent legal disputes.
This article aims to provide a systematic legal framework for importers in the U.S. and other countries to achieve risk control and business stability during the tariff war, through contract design, risk allocation, and dispute resolution mechanisms.
The immediate impact of the tariff war lies in the disruptive changes to cost structures.Taking U.S. purchasers importing goods from China as an example, if a contract does not explicitly allocate responsibilities for tariff adjustments, under the International Commercial Terms 2020 (Incoterms® 2020), import tariffs are generally borne by the buyer except under the Delivered Duty Paid (DDP) terms.
However, the sudden imposition of “reciprocal tariffs” far exceeds the scope of normal commercial risks, leading to squeezed profit margins or even losses for importers.More critically, cost pressures may be transmitted downstream, triggering chain reactions across the supply chain—from Chinese exporters and logistics providers to U.S. end-users, all parties may face legal disputes due to performance obstacles.
The core of legal disputes centers on the allocation of tariff liabilities and mechanisms for adjusting contractual performance.
The key to response strategies lies in the forward-looking design of contract terms. By adopting DDP terms and embedding dynamic adjustment mechanisms (such as price linkage clauses and cost-sharing triggers), importers can transform uncontrollable policy variables into quantifiable performance conditions.
This article analyzes four core issues—“allocation of tariff liabilities,” “paths for negotiated burden-sharing,” “contract modification and termination,” and “future clause design”—integrating international trade rules and practical experience to provide importers with actionable legal frameworks and operational guidelines.

II. Who Bears the Imposed Tariffs?

The allocation of tariff liabilities in cross-border procurement is the core issue in addressing the risks of imposed tariffs. Its legal foundation primarily relies on the explicit contractual terms and the application of international trade rules. Importers must clarify liability boundaries through the following three aspects:
1. The Determinative Role of International Trade Terms
According to the International Commercial Terms 2020 (Incoterms® 2020), the party responsible for import tariffs is largely determined by the trade term selected in the contract.
Among the 11 trade terms, except for Delivered Duty Paid (DDP), which explicitly requires the seller to handle import clearance and bear tariffs in the destination country, all other terms (e.g., FOB, EXW, CFR) default to the buyer’s responsibility for import tariffs and related costs. For example:
  • FOB (Free On Board): The seller is only responsible for loading the goods onto the designated vessel, while the buyer bears all costs of transportation, insurance, and import clearance at the destination port, including tariffs.
  • DDP (Delivered Duty Paid): The seller must deliver the goods to the buyer’s specified destination, complete import clearance, and bear all taxes and fees, making it the only term where the seller assumes import tariffs.
However, if the contract includes special provisions modifying the trade terms, the contractual terms shall prevail. For instance, if the contract adopts FOB but explicitly states that “the seller bears future imposed tariffs,” the contractual clause must be prioritized.

2. The Primacy of Contractual Clauses

Under sudden tariff policies, whether the contract contains a “future tariff adjustment” clause becomes critical. If the contract explicitly states that “tariff changes in the importing country shall be borne by a specific party,” the clause shall govern. If no such clause exists, liability must be interpreted based on trade terms or applicable law. Two common dispute scenarios in practice are:
  • Unforeseen high reciprocal tariffs: If the U.S. imposes “reciprocal tariffs” on China in 2025 far exceeding normal rates and the contract does not address such policy risks, the buyer may argue that this constitutes a “force majeure event” to demand liability reallocation. However, Chinese judicial practice generally views tariff adjustments as commercial risks.
  • Ambiguity in clauses: If the contract vaguely states that “tariffs are borne by the buyer” without clarifying whether additional tariffs are included, interpretive disputes may arise. In such cases, liability must be determined based on the contract’s purpose, trade terms, transactional customs, and governing law.

3. Practical Operational Recommendations

Importers can proactively manage risks through the following steps:

(1) Emergency Review of Existing Contracts:

  • Verify whether the trade terms and tariff clauses cover scenarios such as “reciprocal tariffs” or other tariff adjustments.
  • If non-DDP terms are used and the procurement contract does not specify the sharing of additional tariffs, the buyer needs to anticipate the risk of bearing tariff adjustments.

 (2) Cost Impact Assessment:

Calculate the impact of imposed tariffs on profit margins (e.g., a 34% tariff rate may double costs) and assess the sustainability of the supply chain.

(3) Negotiate Adjustments or Terminate the Contract:

If the contract does not prohibit modifications, invoke Article 543 of the Civil Code to negotiate a supplementary agreement with the supplier, stipulating a tiered sharing ratio.
If negotiations fail and the cost impact reaches a level of “gross unfairness,” attempt to invoke the doctrine of changed circumstances (Article 533 of the Civil Code) to request a court or arbitral tribunal to adjust or terminate the contract. However, sufficient evidence must be provided to prove the unforeseeability of tariff imposition and the hardship of performance.
In summary, the allocation of tariff liabilities must be grounded in contractual agreements, supplemented by the statutory rules of trade terms. Cross-border purchasers should simultaneously conduct clause reviews, cost calculations, and negotiation efforts to clarify liability boundaries and avoid being rendered passive by sudden policy changes.

III. Can Tariffs Be Negotiated and Shared with Chinese Suppliers?

When cross-border purchasers face soaring costs due to imposed tariffs, whether tariff burdens can be negotiated and shared with Chinese suppliers requires a comprehensive assessment of contractual validity, legal remedies, and commercial feasibility. The following analysis is based on the premise that the cross-border procurement contract is governed by Chinese law, covering legal grounds, operational strategies, and risk control. 

1. Legal Feasibility Analysis

(1) Contract Modification Mechanism

According to Article 543 of China’s Civil Code, contractual terms may be modified through mutual agreement. If both parties agree to adjust the tariff-sharing ratio via a supplementary agreement, such terms are legally binding. Practical considerations include:
  • Written Form: Modifications must be clearly documented in a written supplementary agreement to avoid disputes over oral agreements.
  • Clause Specificity: Clearly define the sharing ratio, adjustment triggers (e.g., tariff increases exceeding 10%), and dispute resolution methods.

(2) Applicability of the Doctrine of Changed Circumstances

If negotiations fail, importers may invoke the doctrine of changed circumstances under Article 533 of the Civil Code to request contract adjustments from a court or arbitral tribunal. This requires meeting three key conditions:
  • Unforeseeability: The tariff imposition policy was enacted after the contract’s formation and could not have been reasonably anticipated through commercial foresight.
  • Gross Unfairness: The tariff increase causes performance costs to substantially exceed reasonable expectations (e.g., cost increases exceeding 30% of the contract value).
  • Causation: The cost surge directly results from the tariff policy, not from commercial risks such as market price fluctuations.
Note: Judicial practice generally views tariff adjustments in the context of normalized trade frictions as “foreseeable commercial risks.” Importers must provide substantial evidence to prove the suddenness of the policy and the hardship of performance.

2. Practical Operational Recommendations

(1) Negotiation Strategies and Data Support

  • Cost Quantification: Provide customs duty receipts, profit statements, and other data to demonstrate the impact of tariffs on profit margins (e.g., cost doubling leading to losses).
  • Phased Solutions: Propose dynamic sharing ratios (e.g., 70% borne by the buyer initially, adjusted quarterly thereafter) to mitigate supplier resistance.

(2) Core Clause Design for Supplementary Agreements

  • Sharing Ratio: Define a calculation formula.
  • Trigger Mechanism: Set a tariff increase threshold (e.g., 10%), beyond which renegotiation is automatically initiated.
  • Dispute Resolution: Prioritize neutral arbitration bodies (e.g., China International Economic and Trade Arbitration Commission (CIETAC) or International Chamber of Commerce (ICC)) to avoid jurisdictional conflicts in cross-border litigation.

(3) Risk Hedging Clauses

  • Retroactive Clauses: Stipulate that if tariffs are reduced, the parties shall proportionally refund previously shared costs.
  • Payment Linkage Mechanism: Delay partial payment until after tariff clearance to align risk-sharing obligations.
3. Risk Warnings and Countermeasures
(1) Risk of Supplier Refusal
If the supplier has strong bargaining power or low supply chain substitutability, they may refuse to share costs. In such cases, assess:
  • Alternative Costs: Calculate the feasibility of switching to new suppliers or adjusting business models (e.g., entrepot trade).
  • Long-Term Relationship Balance: Offer purchase volume commitments or extended payment terms to secure concessions and avoid supply chain disruptions.

(2) Evidence Retention Requirements

To invoke the doctrine of changed circumstances, a complete chain of evidence must be provided, including:
  • A timeline comparison between tariff policy issuance and contract formation.
  • A quantitative analysis report on cost impacts.
  • Written negotiation records (e.g., emails, meeting minutes).

4. Core Logic of Negotiation Strategies

Contract-Centric Approach: Prioritize negotiations based on existing contractual terms rather than immediate legal recourse.
Data-Driven Negotiation: Use objective data to demonstrate performance hardships and enhance persuasive power.
Risk-Sharing Orientation: Avoid unilateral cost shifting; seek balanced interests to sustain cooperative relationships.

IV. How to Modify or Terminate Existing Contracts?

When cross-border purchasers face severe cost increases due to imposed tariffs, modifying or terminating contracts requires careful selection of contractual validity and legal remedies. The following guidance is provided under the premise that the cross-border procurement contract is governed by Chinese law, covering legal grounds, operational pathways, and practical recommendations.

1. Legal Pathways for Contract Modification

(1) Modification by Mutual Agreement

Negotiate with Chinese Suppliers to Postpone Delivery and Payment Terms, Monitoring Subsequent U.S.-China Trade Negotiations
Under the backdrop of highly uncertain tariff policies, importers may proactively propose negotiating with Chinese suppliers to temporarily adjust the contractual performance timeline. This can be formalized through written supplementary agreements that specify postponed delivery schedules and extended payment terms, thereby securing buffer time for both parties to monitor subsequent developments in U.S.-China trade negotiations.
Operational Guidelines:
Legal Basis:Under Article 543 of the Civil Code, parties may mutually agree to modify contract performance timelines through a written supplementary agreement, specifying adjusted delivery schedules, payment milestones, and liability waivers.If the supplier agrees to postpone, include a “wait-and-see period” (e.g., 3-6 months) during which performance obligations are suspended while preserving contract validity. If negotiations fail or tariffs persist, original terms resume or trigger other risk-sharing mechanisms.
Commercial Feasibility:
Cost Hedging: During the postponement, importers may withhold partial advance payments to allocate funds for tariff hedging or alternative supply chains, alleviating cash flow strain.
Relationship Preservation: Offer compensatory terms (e.g., future order volume commitments or extended partnership duration) to incentivize supplier cooperation.
Risk Control:
Trigger Mechanism: Include an “automatic reinstatement clause,” e.g., “If the U.S. and China reach a tariff reduction agreement by [Month/Year], original terms apply; otherwise, activate cost-sharing or termination.”
Evidence Retention: Retain official negotiation statements, industry analyses, etc., as decision-making rationale for the “wait-and-see” period to prevent disputes.
Core Value:This strategy converts policy uncertainty into a controlled interim arrangement by “trading time for space,” avoiding unilateral breach risks while preserving flexibility for both parties to adapt to future developments.

(2) Application of the Doctrine of Changed Circumstances

If negotiations fail, invoke the doctrine of changed circumstances under Civil Code Article 533 to request contract modification or termination through a court or arbitral tribunal. The doctrine requires meeting the following conditions:
  • Unforeseeability: The tariff imposition policy was enacted post-contract formation and could not be reasonably anticipated.
  • Gross Unfairness: Performance costs substantially exceed reasonable expectations (e.g., cost increases exceeding 30% of the contract value).
  • Causation: The cost surge is directly caused by the tariff policy, not by commercial risks such as market fluctuations.
Note: Judicial practice generally views tariff adjustments in the context of normalized trade frictions as foreseeable commercial risks. Claimants must provide substantial evidence to prove unforeseeability and hardship.

(3) Can Force Majeure Be Invoked to Delay Performance or Terminate the Contract?

Article 180(2) of China’s Civil Code defines force majeure as unforeseeable, unavoidable, and insurmountable objective circumstances. The U.S. “reciprocal tariffs” and trade protection measures are unlikely to be deemed “unforeseeable” or “insurmountable” by Chinese courts or arbitral tribunals. Thus, they cannot be classified as force majeure to justify delayed performance or termination.
2. Statutory and Contractual Conditions for Termination(1) Contractual Termination Rights
If the contract includes a “policy change termination clause” (e.g., “either party may terminate if the importing country’s tariffs increase by over X%”), the importer must:
  • Strict Procedural Compliance: Issue written notice and retain proof of delivery (e.g., email receipts, courier tracking records).
  • Trigger Verification: Ensure the tariff increase meets the contractual threshold.

(2) Statutory Right to Terminate

Under Civil Code Article 563, if tariff imposition renders the contract’s purpose impossible (e.g., cost doubling eliminates commercial viability), the importer may terminate the contract. However, they must prove:
  • Fundamental Breach or Loss of Basis: The supplier failed to perform, or policy changes destroyed the contract’s foundation.
  • Irremediability: No alternative solutions (e.g., price adjustments or partial deliveries) can restore performance feasibility.
3. Practical Operational Recommendations
 (1) Prioritize Negotiation and Evidence Retention
  • Formal Negotiation Records: Document negotiations through meeting minutes and written correspondence to demonstrate efforts to mitigate losses.
  • Complete Evidence Chain: Collect tariff policy documents, cost calculations, and supplier communications as evidence for changed circumstances or frustration of purpose.
(2) Risk Assessment Before Termination
  • Penalty Clauses: Review whether the contract imposes penalties for unilateral termination and weigh the costs against tariff losses.
  • Supply Chain Alternatives: Calculate the time and cost of sourcing new suppliers or adjusting supply chains to avoid operational disruptions.
4. Core Logic for Risk Mitigation
Modification or termination must be grounded in contractual terms and integrated with legal rules and commercial realities. Purchasers should first negotiate cost-sharing through supplementary agreements and resort to legal remedies only if negotiations fail and costs reach “gross unfairness” or “frustration of purpose.” Embedding dynamic termination clauses and price adjustment mechanisms in future contracts is a long-term strategy to mitigate similar risks.
If the contract is governed by common law (e.g., English or U.S. law), consider invoking doctrines such as “commercial impracticability” or “frustration of purpose” to seek exemption.

V. Future Tariff Clause Design for Cross-Border Procurement Contracts

To address performance risks caused by sudden tariff policy changes, cross-border purchasers must embed refined and forward-looking clauses in future contracts. By allocating responsibilities, establishing dynamic adjustment mechanisms, and hedging risks, a more resilient contractual framework can be built. The following guidance is based on Chinese law, covering core clause design and practical implementation.
1. Core Clause Design

(1) Tariff Liability Allocation Mechanism

Trade Term Selection: Prioritize Delivered Duty Paid (DDP) terms to transfer import clearance obligations and tariff costs to the supplier.
If using buyer-liability terms (e.g., FOB, EXW), add “tariff adjustment clauses,” such as: “If the importing country imposes additional tariffs (including retaliatory tariffs), any excess over the original rate shall be shared by both parties at a [specified ratio].”
Layered Liability Allocation: Distinguish between base tariffs (borne under default trade terms) and additional tariffs (e.g., reciprocal tariffs). Clarify sharing ratios or negotiation mechanisms for the latter.
 (2) Dynamic Adjustment Mechanism
Price Linkage Clause: Stipulate dynamic links between tariff rates and contract prices, e.g., “If import tariffs increase by more than [X%], the unit purchase price automatically rises by [Y%] (Y = tariff increase × cost proportion).”
Renegotiation Trigger Clause: Set a tariff increase threshold (e.g., 15%). Exceeding it triggers negotiations within a defined period (e.g., buyer may terminate if no agreement is reached within 30 days).

(3) Risk Hedging Clauses

Incorporate Changed Circumstances: Explicitly list “significant tariff policy adjustments” as grounds for invoking changed circumstances, with triggers (e.g., tariff increases exceeding 30% of contract value) and procedures (negotiation or termination).
Termination Right Clause: Add a “policy exit mechanism,” e.g., “If cumulative tariff costs exceed [40%] of the contract value, either party may terminate without liability via written notice.”

(4) Dispute Resolution Clauses

Governing Law: Prioritize the United Nations Convention on Contracts for the International Sale of Goods (CISG) or U.S. law to avoid third-party legal uncertainties.
Arbitration Clause: Specify disputes to be resolved by the International Chamber of Commerce (ICC) or China International Economic and Trade Arbitration Commission (CIETAC), with defined arbitration venue (e.g., Singapore), language, and rules.
2. Practical Clause Template Examples
Sample Tariff Adjustment and Risk-Sharing Clause:Base tariffs are borne by the party specified under Incoterms® 2020. If the importing country imposes additional tariffs (including retaliatory tariffs), the excess over the original rate shall be shared **% by the buyer and **% by the seller.If additional tariffs exceed **% of the contract value, both parties shall negotiate price adjustments within 20 days. If no agreement is reached, the buyer may terminate without penalty.Disputes under this contract shall be governed by [Chinese/U.S. law] and submitted to [CIETAC/ICC] arbitration in [Beijing/Singapore].
3. Design Logic and Operational Recommendations
  • Preventive Measures Over Post-Hoc Remedies: Convert uncontrollable policy variables into quantifiable terms (e.g., threshold triggers).
  • Balance Flexibility and Binding Force: Dynamic clauses should allow negotiation while imposing rigid constraints (e.g., automatic termination rights) to avoid endless talks.
  • Supply Chain Stability: Design clauses to maintain supplier relationships—e.g., phased sharing ratios or long-term purchase commitments—in exchange for risk-sharing acceptance.
Key Note: Future contracts must center on “clarified liabilities, dynamic adjustments, and diversified hedging” to balance legal compliance and commercial flexibility, ensuring risk control and transactional stability amid ongoing trade frictions.

VI. Conclusion

The escalating U.S.-China tariff war has placed cross-border purchasers in a vortex of risks—soaring costs, supply chain shocks, and intertwined legal disputes. To survive and thrive amid such complexity, enterprises must not only anticipate policy shifts but also build systemic, legally empowered risk-defense strategies.
Cross-border purchasers may refer to the following flowchart for emergency response.
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The core challenge lies in the uncontrollability of tariff costs. Directly bearing high tariffs may slash profits or cause losses for importers. Cost pressures may ripple through the supply chain, triggering cargo refusals by exporters, defaults by logistics providers, and claims from end-users. Legal disputes are further complicated by cross-border jurisdiction conflicts, governing law clashes, and interpretive ambiguities. Without clear contractual terms and remedies, enterprises risk being trapped in a passive stance.
The underlying logic of response strategies can be distilled into two pillars:
1. Refined Contract Design: Transform uncontrollable policy variables into quantifiable performance conditions through trade term selection (e.g., prioritizing DDP), dynamic adjustment mechanisms (e.g., price linkage clauses), and termination triggers to achieve preemptive risk control.
2. Strategic Alignment of Commerce and Law: Build a multidimensional risk-hedging network through data-driven negotiations (e.g., phased cost-sharing), supply chain resilience (e.g., alternative supplier sourcing), and optimized dispute resolution clauses (e.g., international arbitration).
Proactive defense against future trends demands a shift from “reactive coping” to “active management”:
  • Risk Early-Warning System: Establish real-time tariff policy tracking to monitor legislative trends and industry precedents, preemptively identifying compliance risks.
  • Supply Chain Resilience: Periodically review contractual adaptability, alternative procurement feasibility, and logistics redundancy to strengthen business continuity.
  • Integration of International Rules: Deepen understanding of international commercial laws (e.g., CISG, common law doctrines like frustration of purpose) to gain an edge in dispute resolution.
  • Select Reliable Suppliers: Partner with financially robust, cooperative suppliers committed to navigating challenges.  
  • Dynamic Performance Adjustment: By negotiating deferred delivery and payment terms, enterprises can create buffer periods for policy changes, integrating supply chain resilience with legal clauses to phase out risks.
 The essence of international trade is “peaceful competition,” not “mutually destructive gambits.” Amid the torrent of tariff wars, cross-border purchasers must anchor themselves in law, steer with contracts, and sail with commercial wisdom to navigate a voyage of risks and opportunities. Only by embedding compliance, flexibility, and foresight into their strategic DNA can enterprises achieve controlled risks and mutual value in this silent war.
The above analysis is primarily based on Chinese law. It should be adapted to specific cases and evolving policies, ideally under guidance from legal professionals. If your cross-border procurement contract is governed by Chinese law, contact us for tailored advice.
 Finally, we continue to offer “shell company” vetting and legal background checks on Chinese suppliers. Amid all changes, we remain committed to selecting high-quality suppliers and providing actionable legal guidance.
You may also forward this article to your attorney. We look forward to receiving feedback or comments from you or your attorney.
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