US Tariffs and EU Trade: Contract Implications

US tariffs and supply contracts: the short answer

US tariffs introduced in 2025 changed the economics of many transatlantic supply chains. Under the EU-US Framework Agreement set out in the joint statement of 21 August 2025, the United States committed to apply to most originating EU goods the higher of the most-favoured-nation (MFN) rate or a combined rate of 15 per cent, with lower rates for specific products and separate treatment of steel, aluminium and other goods subject to Section 232 measures. For German companies, the key question is contractual: who bears the additional duty under existing supply and distribution agreements? The answer depends on the Incoterms, price clauses, tariff pass-through provisions, force majeure and hardship clauses and, where the contract is silent, on German or international sales law.

As a rule, tariffs do not make performance impossible, and courts are reluctant to rewrite contracts because a deal has become less profitable. Companies that want to share tariff risk must therefore agree on it. This article explains the legal starting point under German law, the clauses that matter and how to renegotiate and draft supply contracts in the current environment. US tariff law and its ongoing litigation in US courts are outside its scope.

The tariff landscape in brief

In 2025 the United States introduced so-called reciprocal tariffs on imports from most trading partners and increased tariffs on specific sectors under Section 232 of the Trade Expansion Act of 1962. After negotiations, the EU and the United States issued the joint statement on a Framework Agreement on 21 August 2025. Its key terms for EU exporters include:

• a ceiling under which the United States applies the higher of the US MFN rate or 15 per cent, comprising the MFN tariff and a reciprocal tariff, on originating EU goods;
• MFN-only treatment from 1 September 2025 for certain products, including unavailable natural resources, aircraft and aircraft parts and generic pharmaceuticals and their ingredients;
• a commitment that combined MFN and Section 232 tariffs on EU pharmaceuticals, semiconductors and lumber should not exceed 15 per cent;
• a reduction of Section 232 tariffs on EU automobiles and parts to a combined 15 per cent once the EU introduced its legislative proposals to reduce tariffs on US goods.

The EU, for its part, committed to eliminate tariffs on US industrial goods and to grant preferential access for certain agricultural and seafood products. The situation remains fluid, because US tariffs are adjusted by executive action, subject to litigation in the United States and linked to the implementation of the framework. Contracts should therefore be drafted for change, not for a particular tariff rate.

Who pays the duty? Incoterms and delivery terms

The first place to look is the delivery term. Under the ICC Incoterms rules, the allocation of import duties is clear:

Many German exporters sell DDP to US customers or through US subsidiaries that act as importers of record. In intra-group structures, the US subsidiary bears the duty, and the question becomes one of transfer pricing and customs valuation rather than contract law. In distribution agreements, the distributor usually imports and bears the duty, but may demand price reductions or seek to terminate if the agreement allows.

Price adjustment and tariff pass-through clauses

Where the seller bears the duty, the price clause decides whether it can be passed on. German law allows price adjustment clauses in B2B contracts, including in standard terms, if they are transparent and do not unreasonably disadvantage the counterparty (§ 307 of the Civil Code, Bürgerliches Gesetzbuch, BGB). Typical models are:

• Tariff pass-through clauses: any new or increased customs duty, tariff or similar charge after signing is added to the price or borne by the buyer.
• Cost-element clauses (Kostenelementeklauseln): the price follows defined cost components; such clauses are expressly permitted under § 1(2) no. 3 of the Price Clause Act (Preisklauselgesetz, PrKG) to the extent the costs directly affect the creditor's own costs.
• Renegotiation clauses: changes in duties above a threshold trigger an obligation to renegotiate in good faith, often with a termination right if no agreement is reached.
• Price review clauses (Leistungsvorbehaltsklauseln): one party or an expert determines a new price equitably within a defined framework.

Force majeure and hardship

German statutory law does not contain a general force majeure rule. Contractual force majeure clauses typically cover events beyond the parties' control that prevent or delay performance, and sometimes expressly include "acts of government", "embargoes" or "changes in law". Whether a tariff increase is force majeure depends on the wording. Most clauses require that performance is prevented or hindered, not merely made more expensive, so tariffs rarely qualify unless the clause says so expressly.

Where the contract is silent, the doctrine of interference with the basis of the transaction (Störung der Geschäftsgrundlage) in § 313 BGB may allow adjustment or, as a last resort, termination. Its requirements are strict: circumstances forming the basis of the contract must have changed significantly after signing, the parties would not have contracted on the same terms had they foreseen the change, and holding a party to the contract must be unreasonable, taking into account the contractual and statutory allocation of risk. Price and cost risks generally lie with the party that promised the fixed price. After the tariff announcements of 2025, courts may also consider further tariff changes foreseeable for contracts signed later, which weakens § 313 BGB arguments.

International sales under the CISG

Many export contracts are governed by German law including the UN Convention on Contracts for the International Sale of Goods (CISG), which applies unless excluded. Article 79 CISG exempts a party from damages for a failure to perform caused by an impediment beyond its control that it could not reasonably have taken into account. Increased costs are generally not such an impediment, and the CISG has no express hardship rule. Parties that want hardship relief should agree on it.

Distribution, agency and long-term supply

US tariffs affect more than single sales. In distribution agreements, distributors may demand support or exclusivity changes; principals may want to restructure territories or move to direct sales. Terminating a distributor or commercial agent can trigger compensation claims, notably the goodwill indemnity for commercial agents under § 89b of the Commercial Code (Handelsgesetzbuch, HGB), which German courts apply by analogy to certain distributors. In long-term supply agreements, volume commitments, take-or-pay provisions and exclusive supply obligations should be reviewed for flexibility.

Purchasers in Germany should also check their own supply chains. If US tariffs lead to trade diversion or EU safeguard and anti-dumping measures on third-country goods, German importers face similar questions in reverse.

Origin, classification and valuation as levers

The duty actually payable on US imports depends on three customs parameters: the tariff classification of the product, its country of origin and its customs value. Each can be influenced lawfully, and each should be reflected in contracts.

• Origin. The EU-US framework applies to goods originating in the EU. Where products contain components from third countries, the origin determination under US rules decides whether the 15 per cent ceiling applies. Changes in sourcing or production steps can change origin, but must have real economic substance.
• Classification. Different tariff codes may attract MFN-only treatment or fall under Section 232 measures. Correct classification, supported by technical documentation, avoids overpayment and penalties.
• Valuation. The customs value usually follows the transaction price. In intra-group sales, transfer pricing and customs valuation must be aligned, and separating non-dutiable services such as installation or software can reduce the dutiable value if contracts are structured accordingly.

Supply contracts should allocate responsibility for origin declarations, supplier declarations and classification data, and provide for cooperation in customs audits. Errors in these areas can lead to back duties and penalties for the importer of record, which will then seek recourse against the supplier if the contract allows.

Renegotiating existing contracts

Where the contract does not allocate tariff risk, renegotiation is usually the only realistic path. Practical steps:

1. map all contracts with US exposure by Incoterm, price clause, governing law and term;
2. quantify the tariff impact per contract and identify customers for which the relationship justifies sharing the burden;
3. review termination rights and notice periods as leverage;
4. propose temporary surcharges or tariff-sharing formulas with review dates;
5. document agreements in writing, respecting any written form requirements in the contract.

Unilateral surcharges without a contractual basis are not binding and can lead to disputes, set-off and claims for repayment. Threats to stop deliveries unless a surcharge is paid may breach the contract and expose the seller to damages.

Illustration: a hypothetical German manufacturer of industrial pumps sells DDP to a US customer under a three-year framework agreement with fixed prices and no tariff clause. When combined tariffs on its products rise, the manufacturer bears the duty. It cannot rely on force majeure, and § 313 BGB is unlikely to help because price risk lies with the seller. It negotiates a temporary tariff-sharing surcharge in exchange for extended volume commitments, and amends its standard terms for new orders to include a symmetrical tariff pass-through clause.

Drafting checklist for new contracts

• Choose Incoterms deliberately and align them with the price structure.
• Include a precise tariff pass-through or adjustment clause, symmetrical where possible.
• Address customs origin, valuation and classification responsibilities, since rates depend on origin and tariff codes.
• Define force majeure and hardship, including whether changes in law and tariffs qualify.
• Provide renegotiation and termination mechanisms with clear thresholds.
• Choose governing law and dispute resolution, including whether to exclude the CISG and whether to use arbitration, which is often easier to enforce against US counterparties.

How TRW & Co helps with US tariffs

We advise German manufacturers, distributors and buyers on the contractual consequences of US tariffs. We review supply and distribution portfolios, assess risk allocation under German law and the CISG, draft tariff pass-through, hardship and renegotiation clauses and support renegotiations and disputes. We also advise on related EU trade measures and on restructuring distribution networks. Our work connects with our commercial contracts, distribution and US desk practices. See also force majeure and hardship under § 313 BGB and the EU Anti-Coercion Instrument. To review your contracts, contact us.