As part of his 2024 Presidential campaign, President-elect Donald Trump made universal tariffs a primary principle of his economic policy proposals, promising to apply significant tariffs on foreign goods entering the United States. Trump proposed a 60% tariff on goods from China and potentially a 20% tariff on all other United States imports. Following his presidential election victory, Trump suggested a range of tariffs from 40% – 100% on U.S. imports. The exact policy proposal and its potential enactment remain to be determined.

A number of U.S. businesses have expressed concern over the uncertainty of whether the contemplated tariffs will be enacted, but an immediate question for businesses is what they should do now to prepare in case such tariffs are actually imposed.

In practice, tariffs are paid by the companies importing goods from abroad – i.e., American companies – meaning that such companies must:

1. raise the prices on consumers to account for the increased costs attributable to such tariffs,
2. keep prices static while accepting reduced profit margins,
3. insist on suppliers cutting prices, or
4. some combination of (1) – (3).

Suppliers routinely include cost escalation clauses in their customer contracts and terms and conditions, qualifying that any price quoted for a product is subject to market change, supply disruption, adjustments to foreign exchange rates, and tax reforms, among other causes. By the time a supplier delivers its goods to a customer, the purchase price in any prior quote may have risen due to such factors. Suppliers need to review references to taxes in their contracts to ensure that such references include tariffs or that the definition of “Taxes” in any contract or terms and conditions includes a robust and broad range of potential taxes (i.e., U.S. federal, state, local, and foreign taxes, duties, tariffs, etc.).

The next question is who is responsible for an increase in purchase price at the time of consummation of a sale following a prior quote agreed to between a supplier and purchaser?

Suppliers will likely insist that any increased costs due to changes in tariffs and taxes be the responsibility of the purchaser. Purchasers will likely insist that any such increase at least be split between the parties. Bargaining power between the parties, overall market conditions, supply chain stability, and purchaser demand for products further complicate the analysis.