Renegotiating Contracts to Counter the Tariff Turbulence

Enterprises across the world are rushing to redraft contracts with their suppliers and buyers to de-risk their businesses from the uncertainties of a global trade war triggered by US tariffs and countermeasures from other nations.

Companies across the world doing business with the United States are scrambling to figure out strategies to shield themselves as far as possible from the financial risks thrown up by the across-the-board tariffs imposed by the US president. Most of them are reopening their contract clauses with buyers and suppliers to ensure that financial risks are minimized.

According to reports India’s IT companies were passing on productivity gains to clients. In some cases, cost savings may be eating up their revenue and shortening project timelines. Meanwhile, IT services vendors are changing their pricing models, from the traditional TNM (time and material) to more outcome-based, as AI upends the traditional model based on FTE (full-time equivalent, or the total hours worked by their employees on a contract).

Meanwhile, the aerospace industry has been making headlines, as China recently refused to take deliveries of Boeing planes it had ordered, owing to impossibly high tariffs. An aerospace analyst aptly described the chaos observing that it takes only a ‘bolt to stop the entire aerospace supply chain.”

Global aerospace giants — from suppliers to airlines — are locked in a fierce battle over rising tariffs, dissecting billions of dollars’ worth of contracts to shield themselves from financial fallout. The impact of tariffs has created significant challenges for financial forecasts and valuations.

Businesses are exploring strategies to strengthen their contractual frameworks to navigate the new tariff reality while protecting operations from disruption. This involves updating force-majeure clauses, implementing price adjustment mechanisms, diversifying sourcing strategies, and enhancing cost transparency.

The crisis further escalated when U.S.-based supplier Howmet Aerospace sent shockwaves through the industry by declaring a “force majeure event” — a rare legal claim allowing it to suspend obligations due to unforeseen disruptions, like the tariffs imposed by the U.S. government.

Howmet, a critical manufacturer of engine parts and fuselage fasteners, has effectively challenged the balance of power in global aviation supply chains — raising urgent questions about who should ultimately bear the financial burden of the emerging trade war. At the heart of this conflict are the 20% tariffs imposed by the US  on European Union products — targeting Airbus planes and threatening potential retaliation against U.S. companies like Boeing. Howmet’s bold force majeure declaration has now placed the entire $800 billion aerospace supply chain under intense scrutiny.  Historically, rising costs have been passed down to passengers in the form of higher airfares. However, this crisis is forcing those costs back up the chain — threatening suppliers, manufacturers, and airlines alike.

Force majeure provisions should explicitly include “material changes in trade policy, tariffs, sanctions, and import/export restrictions” to ensure structured renegotiation if sudden tariffs make agreements commercially unviable. A proactive approach involves updating force majeure language to cover “government-imposed tariffs, retaliatory duties, and other material trade barriers,” requiring notification timelines and renegotiation frameworks, and defining mechanisms for cost-sharing when tariffs exceed certain thresholds.

As of March 2025, any aircraft of Canadian, Mexican or Chinese origin imported into the US is subject to the new country-wide tariffs upon entry. This means aviation contracts – whether for purchasing whole aircraft or critical parts – must account for sudden 10–25% cost swings. Aircraft purchase agreements are being revisited to clarify who bears tariff costs and whether delivery can be delayed or redirected to minimize duties. Lease and maintenance contracts also need contingency language, since tariffs on spare parts or repair services (e.g. if an overhaul in another country now triggers a tariff) can significantly raise operational costs.‍

Per ContractKen, a company which offers solutions to simplify contracts its customers, these tariffs can turn a profitable contract into a loss-making one overnight by adding double-digit percentage costs to goods. A 10% or 25% tariff can wipe out profit margins, especially in industries with tight margins.

In the tech hardware sector a 7% increase in cost of goods from new tariffs (on top of existing inflation) could erode most of the operating income for many companies. In fact, 69% of tech industry executives in a recent survey said new tariffs forced them to adjust their growth strategies. These figures underscore that tariffs are not just trade policy news – they are bottom-line issues that demand executive attention. The most resilient businesses will be those that embed flexibility and foresight into their contracts, ensuring they can adapt swiftly to disruption rather than scramble to recover from it.