For Canadian businesses that import from, export to, or otherwise depend on the United States, tariffs have become an evolving risk rather than a one-time pricing exercise. Measures may be imposed, expanded, narrowed, suspended or replaced with new measures, sometimes on relatively short notice.

The impact can extend well beyond the tariff charged at the border. Increased costs may affect pricing, supplier relationships, purchasing commitments, and the ability to perform existing contractual obligations. Businesses may also need to consider alternative suppliers, renegotiate commercial terms or restructure aspects of their supply chain.

For that reason, businesses should consider not only whether their goods are subject to tariffs, but also whether their contracts are prepared for tariff-related disruption.

Understand Where Tariff Risk Exists: Start with Your Supply Chain

Tariff exposure can arise at multiple points in a supply chain. Therefore, businesses should identify where products, components and raw materials originate, not simply where their immediate supplier is located.

A Canadian manufacturer may be affected even if its finished products are not directly subject to a new tariff. For example, tariffs on imported U.S. products can increase the cost of raw materials, components, equipment or packaging for a Canadian business. Furthermore, if those products are then incorporated into other products subsequently exported to the United States, the finished goods may also face additional duties.

Review Your Contracts Before Changing Suppliers or Prices

Once the source of tariff exposure has been identified, the next step is to review the agreements that govern those relationships.

Tariffs often cause businesses to consider increasing prices, sourcing from a different supplier or changing their distribution model. Before doing so, existing contractual obligations should be reviewed carefully.

Understanding those obligations at the outset can help a business evaluate its options without creating a separate contractual issue in the process.

Depending on the agreement, relevant provisions may include:

  • pricing allocation clauses – who is contractually responsible for new duties, tariffs and customs costs;
  • price-adjustment provisions – whether prices can be adjusted when tariffs or laws change;
  • minimum-purchase requirements provisions – whether there is a minimum purchase order requirement;
  • exclusivity provisions – can the business move to another supplier without breaching an existing commitment;
  • termination and notice requirements – how quickly can an existing supplier or distribution relationship be changed;
  • force majeure and hardship provisions – do they actually cover tariffs or extraordinary increases in costs;
  • restrictive covenants – including non-compete and non-solicitation provisions.

For example, changing suppliers may reduce tariff exposure but could also result in a breach if the business is subject to an exclusivity or minimum-purchase obligation. Similarly, a supplier facing substantially higher costs may not necessarily have the contractual right to pass those costs on to its customer. Therefore, a decision that makes commercial sense from a tariff or cost perspective can still create unexpected contractual risks.

Future-proofing: Draft New Agreements with Tariff Risk in Mind

Reviewing existing agreements can help businesses understand what options are available now and, more importantly, inform how future agreements are drafted. Where existing contracts provide limited flexibility or leave responsibility for tariff-related costs unclear, new agreements can be structured more deliberately to address those risks from the outset.

Businesses entering into new supplier, customer or distribution agreements should consider how the contract will operate if tariffs change after it is signed.

There is no single tariff provision that will be appropriate in every circumstance. The contract should be tailored to the particular industry, the bargaining positions, and the commercial and financial risks involved.

We Can Help.

If tariffs are affecting your business, we can help assess the legal and contractual implications.

We can review your existing agreements to identify tariff-related risks and determine what options may be available before your business changes pricing, suppliers, or other commercial arrangements.

We can also assist with drafting and negotiating new agreements designed to better address such risks.

Contact us now to discuss how your existing and future commercial agreements can be structured to help your business navigate the changing trade environment.



About SV Law

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