Tariff Clauses in Contracts: Who Pays When Duties Change (2026)
Force majeure won't save you. Here is the clause that will — plus the sentence almost nobody wrote, about who keeps the refund.
Short answer
Tariff risk is allocated by three things, in this order: the Incoterm, which decides who imports and owes the duty; a tariff pass-through or price adjustment clause, which decides who absorbs an increase; and a change-in-law clause, which decides who can walk away. Force majeure does almost none of this work.
Why 2026 broke everyone's supply contracts
Most supply and vendor agreements in circulation were drafted in a world where duty rates moved slowly, by legislation, with years of notice. That assumption is now gone, and the last eighteen months have demonstrated it in both directions.
On February 20, 2026, the Supreme Court held 6–3 that the International Emergency Economic Powers Act does not give the President authority to impose tariffs of indefinite scope. The tariffs collected under IEEPA were unlawful, and the government began unwinding them. The Court of International Trade ordered refunds; U.S. Customs and Border Protection stood up a claims process, and tens of thousands of importers registered for electronic refunds.
What did not happen is the thing many businesses assumed would happen. Tariffs did not end. Section 232 national-security duties were never before the Court and remain fully in force — 50% on steel, aluminum and copper, 25% on automobiles, heavy-duty vehicles, lumber and timber. A replacement surcharge of roughly 10% on most imports was promptly imposed under Section 122 of the Trade Act of 1974. The Court of International Trade struck that down too, in May 2026, but the Federal Circuit stayed the ruling pending appeal, so it is still being collected on goods entering the country today.
The practical lesson for a contract drafter is not "tariffs are high" or "tariffs are falling." It is that the rate on the day you sign is not the rate on the day you ship, and the direction of the change is genuinely unpredictable. A contract that only contemplates increases is half a clause.
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Analyze your contract now →Why force majeure is the wrong tool
This is the single most common mistake, and it costs money every time. When duties spike, the instinct is to reach for the force majeure clause — it mentions government action, and a tariff is government action.
The problem is what force majeure does. It excuses performance that has been prevented or rendered impracticable. It is a shield against a breach claim, not a pricing mechanism. Even a successful force majeure argument does not entitle you to charge more; it typically suspends obligations or, after a defined period, allows termination. If your goal is to keep selling at a viable price, winning the force majeure argument gets you nothing you wanted.
And you will usually lose it anyway. A tariff makes goods more expensive to import. It does not make them impossible to import. Courts have long held that increased cost of performance — even substantially increased cost — is a risk the parties are presumed to have allocated when they fixed a price. The impracticability doctrine under UCC § 2-615 sets a high bar, and ordinary market or duty-driven cost swings do not clear it.
There is one narrow exception worth knowing: a force majeure clause that expressly lists tariffs, duties, quotas, embargoes or trade restrictions among the triggering events gives you a real argument, because the parties said in writing that they treated those as extraordinary. If your template's list ends with the usual "acts of God, war, terrorism, epidemic, labor dispute," those words are doing nothing for you here. Add the trade terms — and then still write the pricing clause below, because force majeure will not set your price.
The clause that actually works: tariff pass-through
A tariff pass-through clause does one job well: it moves an incremental duty from the party that pays Customs to the party the two of you agreed should bear it. A workable version has five parts.
- A baseline. State the aggregate duty rate applicable to the goods as of the effective date, by HTS classification if you can. Everything downstream is measured against this number, and a clause without a baseline is unenforceably vague.
- A trigger. Define the change that activates the clause — a new or increased duty, surcharge, or trade remedy imposed by a governmental authority after the effective date. Say whether decreases trigger it too. They should.
- A threshold. Pick a number: a change of more than two percentage points, or more than 3% of the invoice value. Without one you will renegotiate over rounding.
- A calculation and proof requirement. Dollar-for-dollar pass-through of the incremental duty actually paid on the affected goods, evidenced by the CBP entry summary (Form 7501) or equivalent documentation. No markup on the pass-through unless you say so.
- A response window. The paying party gets a defined period — 15 or 30 days — to accept the adjustment, cancel undelivered orders, or trigger renegotiation. This is what keeps the clause from reading as a unilateral right to reprice at will, which is where enforceability gets shaky.
| Clause | What it actually gives you | When to rely on it |
|---|---|---|
| Force majeure | Suspension of performance, and eventually termination. No price relief. | Only when performance is genuinely blocked — an embargo, a licensing ban, a closed port. |
| Tariff pass-through / price adjustment | A defined, documented change to the contract price, up or down. | The default tool. Any agreement for goods crossing a border, at any volume. |
| Change in law | A right to renegotiate in good faith, and to terminate if renegotiation fails. | Long-term and fixed-price agreements where a large enough swing should let either side exit. |
| Hardship / material adverse change | A renegotiation duty triggered by a defined economic threshold. | Multi-year supply deals, more common in cross-border and civil-law drafting. |
| Refund allocation | A claim on duties later refunded, remitted or reduced. | Always — and almost nobody has it. See below. |
Incoterms decide more than your clause does
Before any of the above matters, check the shipping term. It determines who is the importer of record, and the importer of record is the party legally obligated to pay Customs. A pass-through clause is an allocation between the parties; it does not change who owes the government.
- DDP (Delivered Duty Paid) — the seller imports and pays all duties. Sellers who quoted DDP prices against a duty schedule that then changed are the ones who got hurt worst in 2025 and 2026.
- DAP (Delivered at Place) — the seller delivers, the buyer clears customs and pays duty.
- FOB / FCA / EXW — the buyer takes on import responsibility early. Duty risk sits with the buyer by default.
If you sell DDP, your price is a bet on the duty rate. Either stop quoting DDP on long-dated orders, or put a pass-through clause behind it. If you buy DDP, understand that your supplier is carrying that risk and will eventually price it in or come back to renegotiate.
The sentence nobody wrote: who keeps the refund
This is the most valuable paragraph in this article, and it exists because of what happened after February 2026.
When a tariff is later found unlawful, CBP refunds the importer of record or the agent who paid the duty. That is a customs-law rule about who has a claim against the government. It has nothing to do with who actually absorbed the cost. So if a seller imported DDP, passed the duty through to a buyer as a line-item surcharge, and the duty is later refunded, the refund lands with the seller. The buyer paid it and has no automatic right to a cent of it.
With an estimated $175 billion in IEEPA refunds moving through the system, this is not a theoretical drafting nicety. Businesses are discovering right now that they reimbursed duties in 2025 with no contractual hook on the money coming back.
Refund Allocation. If any duty, tariff, surcharge or other import charge that was passed through to or reimbursed by a party under this Agreement is subsequently refunded, remitted, reduced, abated or otherwise recovered, in whole or in part, the party receiving such recovery shall pay the corresponding amount to the party that bore the cost, net of documented reasonable costs of recovery, within thirty (30) days of receipt. Each party shall use commercially reasonable efforts to pursue available refunds and shall, on request, provide entry summaries and other documentation reasonably necessary to substantiate amounts paid and recovered. This Section survives termination or expiration of this Agreement.
Note the survival sentence. Refund litigation runs years past the life of the underlying purchase order, and a clause that dies with the contract dies right before it becomes useful.
What freelancers and service businesses should take from this
If you do not import anything, you might reasonably assume none of this touches you. Two ways it does.
First, pass-through by proxy. If you build, fabricate, install, or resell anything with a physical component — a designer specifying materials, a contractor buying fixtures, an agency producing physical goods — your cost basis moves with duty rates even though you never file an entry. A fixed-price quote with a 90-day validity and a materials cost-adjustment sentence is a better instrument than a fixed-price quote that stays open indefinitely. Say what your quote is based on, say how long it holds, and say what happens if the underlying cost moves more than a stated percentage.
Second, the client's budget. Tariff-exposed clients cut discretionary spend first, and that is where services live. This is the argument for deposits, milestone billing, and a kill fee — not because a client is untrustworthy, but because a cancellation you did not price for is a loss you absorb alone.
A five-minute audit of your existing contracts
- Find the Incoterm. If it says DDP and the term runs more than 90 days, you have unhedged duty exposure.
- Read the force majeure list. Does it name tariffs, duties, or trade restrictions? If not, it is not a tariff clause, whatever anyone tells you.
- Look for a price adjustment mechanism. If prices are "firm for the term" with no adjustment trigger, you are carrying the whole risk.
- Search for the word "refund." In most contracts it appears only in the context of returns. Add the refund-allocation clause above.
- Check the term and the exit. A change-in-law clause with a termination right is the backstop when the pass-through math stops working entirely.
Frequently asked questions
Does force majeure cover a tariff increase?
Almost never. Force majeure excuses performance that has become impossible or impracticable; it is not a mechanism for passing on a cost. A tariff makes a contract more expensive, not impossible, and courts have consistently treated increased cost as an ordinary commercial risk the parties assumed. The narrow exception is a clause that names tariffs, duties, quotas, embargoes or trade restrictions expressly — and even then, the usual remedy is suspension or termination, not a price increase.
What clause actually lets me raise prices when tariffs go up?
A tariff pass-through or price adjustment clause. It states a baseline duty rate as of the contract date, defines what counts as a triggering change, and specifies how the price moves — typically a documented dollar-for-dollar pass-through of the incremental duty on affected goods, supported by entry summaries. A change-in-law clause is the broader cousin: it gives one or both parties the right to renegotiate or terminate when a governmental action materially changes the cost of performance.
Who legally owes the tariff, the buyer or the seller?
The importer of record owes the duty to U.S. Customs and Border Protection, and who that is depends on the shipping terms. Under DDP (Delivered Duty Paid), the seller is the importer and eats the duty. Under DAP, FOB, or EXW, the buyer generally imports and pays. Customs looks only at the importer of record; a private contract cannot change who owes CBP, but it can and should say who bears the cost between the parties.
Who gets the refund if a tariff is later ruled unlawful?
U.S. Customs refunds the importer of record or the agent who paid — not whoever ultimately absorbed the cost through the supply chain. That creates a windfall problem: a buyer who reimbursed a seller's duty under a pass-through clause has no claim on the refund unless the contract says so. Add a refund-allocation sentence stating that any duty later refunded, remitted or reduced is credited back to the party that bore it.
Are the Trump tariffs still in effect in August 2026?
Many of them are. The Supreme Court held on February 20, 2026 that IEEPA does not authorize the tariffs imposed under it, and those were terminated. But Section 232 national-security tariffs were untouched and remain in force, including 50% on steel, aluminum and copper and 25% on automobiles, heavy-duty vehicles, lumber and timber. A replacement surcharge of roughly 10% was imposed under Section 122 of the Trade Act of 1974; the Court of International Trade invalidated it in May 2026, but the Federal Circuit stayed that ruling, so it continues to be collected while the appeal proceeds.
The short version
Duty rates are now a variable, not a constant, and they move in both directions. Write the clause that handles a variable: a stated baseline, a numeric trigger, documented pass-through, a response window, and a refund-allocation sentence that survives termination. Then check the Incoterm, because it quietly decides more than the clause does.
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Generate a contract →Sources
- Congressional Research Service — Supreme Court Rules Against Tariffs Imposed Under IEEPA
- Holland & Knight — Supreme Court Strikes Down IEEPA Tariffs: What Importers Need to Know Now
- Gibson Dunn — Section 122 Global Tariffs Invalidated by the Court of International Trade
- Troutman Pepper Locke — Federal Circuit Hits Pause on CIT's Section 122 Tariff Ruling
- Quinn Emanuel — Client Alert: Tariffs and Force Majeure
This article is general information about how contracts commonly work, not legal advice, and reading it does not create an attorney-client relationship. Laws differ by jurisdiction and change over time. Consult a licensed attorney in your jurisdiction before relying on any agreement.
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