Tariffs and commercial contracting simplified: How tariffs affect your business and how to protect it
3 mins reading time
Tariffs continue to be a focal point in recent international trade discussions. US President Donald Trump recently described tariffs as ‘the most beautiful word in the dictionary.’ However, what boosts one market can potentially hinder another and recent developments indicate that tariffs can cause significant and lasting impact on reciprocal markets, including significant challenges for Australian businesses.
While the current landscape is complex and uncertain, navigating through and being on the forefront of these changes is essential to protect your business.
What is a tariff?
Put simply, tariffs are taxes on imports. This tax is paid to the government by the companies that bring these foreign goods into the country.
Tariffs are not new, having been widely used by the US from the 1860s until the mid-1930s. They are typically charged based on a percentage of a product’s value. For instance, if Australia imports goods with a 20% tariff, a product valued at $100 would incur an additional $20 charge.
Tariffs might sound simple, but their effects go far beyond revenue raising. They can result in difficulties in sourcing materials and suppliers, heightened trade tensions and price hikes as companies pass on the tariffs. Their effects can strain business relationships and can trigger or draw-out disputes.
How can tariffs affect Australian businesses?
Australia has worked hard to simplify its trade system and remove compliance burdens. As a result, most goods were imported duty-free, meaning that businesses could invest their resources into proving that imports were eligible for existing tariff preferences and concessions.
However, the changing international landscape is posed to complicate Australia’s trade landscape. Tariff announcements previously have primarily impacted steel and aluminium businesses, with the US imposing a 25% tariff on Australian steel and aluminium exports.
On April 3rd, 2025, Australia received news of the US establishing a 10 per cent baseline tariff on all Australian exports. These blanket tariffs will likely have significant economic implications, with the market gearing up for higher delivery costs, increased consumer prices and major disruptions in supply chains. In response, Prime Minister Anthony Albanese has introduced several measures including $50 million in emergency funding and zero interest loans for affected industries. However, many Australian businesses and individuals still anxiously await further details of how they will be directly impacted.
With the hope for any immediate exemptions in favour of Australia being recently extinguished, Australian businesses may need to act sooner rather than later.
Is there any good news?
The tariff landscape is continually evolving, but, there is work that can be done to mitigate any potential for business harm. Tariffs could mean benefits from new market opportunities, reduced tariffs in other jurisdictions, and improved trade terms with countries other than the US.
Some political leaders have expressed their wish for Australia to move beyond its US relationship and towards other countries impacted by tariffs. For example, Australian-based businesses might benefit from stronger trade relationships with Indo-Pacific partners due to trade diversion effects. This may enhance demand for Australian products in countries imposing retaliatory tariffs on US goods.
This shift can create new opportunities for Australian businesses to expand their market presence and offset some of the negative impacts of US tariffs. This prediction is backed by industry experts, commenting that with trade diversion, they foresee trade to pick up between Australia and other countries.
Essential contracting clauses to help manage tariffs
Businesses can take proactive steps by reviewing the way both existing and future contracts are drafted and by considering inclusion of some or all of the below clauses.
Price escalation clauses with specific terms and mechanisms can be implemented at the beginning of projects to address tariff-induced inflation. The benefits of these clauses include provisions for periodic reviews to reassess or adjust prices as necessary, helping to ensure parties are not locked into unsustainable arrangements due to changing economic conditions.
Termination clauses may increase freedoms for parties where obligations can be halted if certain conditions arise, particularly where prices rise, or additional tariffs are introduced. Such express conditions can be tailored to address both broad and specific changes in market conditions, regulatory shifts or other external factors which may help businesses manage fluctuating costs and preserve collaborative relationships.
Dispute resolution clauses are also useful in managing tariff-related risks, and with clear wording, these clauses can ensure effective risk management and smoother resolution of disputes. Dispute resolution clauses should not be generic, especially tariff uncertainties and instead tailored to specific party needs and business objectives. Inserting carefully drafted negotiation and mediation clauses could also help to maintain positive relationships, especially in ongoing trade. Doing so effectively may also help to avoid costly court proceedings and protect sensitive business information and reputation.
Force majeure clauses are explicit contractual provisions that allows obligations to be discharged where parties are unable to fulfill obligations due to unforeseen events outside of their control, as exemplified in recent global events such as other previously imposed tariffs, and COVID-19. These clauses address events that may prevent or delay performance, not just unexpected costs. However, ambiguity arises in the determination of whether tariffs make performance more difficult or less profitable versus completely impossible.
Amendments related to legislation or tax changes may be more relevant to some businesses than force majeure clauses. To implement these, consider using terms like ‘tariff’ or ‘subject to tax or law changes’ in newly drafted contracts which allows companies to amend contracts, renegotiate, or claim additional costs, instead than defaulting on obligations.
Ultimately, it is crucial to prioritise flexible contracting within businesses to facilitate efficient renegotiation of clauses. This allows expectations to be managed and supports room for adjustments between trade relationships as conditions shift.
What other steps can businesses take?
Outside of contractual amendments, businesses can consider taking the following steps to prepare to mitigate the impact of US tariffs and retaliatory tariffs:
Diversification can leverage stability amongst supply chains by expanding sources of materials from multiple suppliers and exploring new markets. This can mitigate the risk of depending on any one single source and ensure robust business operation.
Nearshoring can reduce reliance on affected international supply chains by deepening engagement with trade alliances closer to your business hub. Not only does this reduce transportation costs and time but allows for greater control over general operations.
Enhancing a local and digital presence may help to capitalise on markets that require less effort than traditional international routes. This approach can reduce dependency on international trade and provide more stable and accessible market opportunities during turbulent times.
Investing in innovation, competitiveness and financial resilience to back your business, showing that your goods or services can prove their worth over cheaper alternatives. This may involve investing in innovative techniques to promote product efficiency and quality whilst strengthening cash flow and debt management. This looks attractive to customers and partners and fosters trust in your ability to sustain your market position and offset the tariff impacts, maintaining that it’s ‘business as usual’.
Legal advice with an international outlook
While drastic changes continue to disrupt the global supply chain, it may take some time for the full effects of these disruptions to be felt. Taking proactive measures now can help mitigate potential negative impacts on your business in the future.
Macpherson Kelley has a dedicated group of lawyers with specific experience advising Foreign Owned Subsidiaries on doing business in Australia. We can provide tailored advice and recommendations on what proactive measures can be put in place to address tariffs and an increasingly volatile market.
Contact our lawyers today.
The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.
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Tariffs and commercial contracting simplified: How tariffs affect your business and how to protect it
Tariffs continue to be a focal point in recent international trade discussions. US President Donald Trump recently described tariffs as ‘the most beautiful word in the dictionary.’ However, what boosts one market can potentially hinder another and recent developments indicate that tariffs can cause significant and lasting impact on reciprocal markets, including significant challenges for Australian businesses.
While the current landscape is complex and uncertain, navigating through and being on the forefront of these changes is essential to protect your business.
What is a tariff?
Put simply, tariffs are taxes on imports. This tax is paid to the government by the companies that bring these foreign goods into the country.
Tariffs are not new, having been widely used by the US from the 1860s until the mid-1930s. They are typically charged based on a percentage of a product’s value. For instance, if Australia imports goods with a 20% tariff, a product valued at $100 would incur an additional $20 charge.
Tariffs might sound simple, but their effects go far beyond revenue raising. They can result in difficulties in sourcing materials and suppliers, heightened trade tensions and price hikes as companies pass on the tariffs. Their effects can strain business relationships and can trigger or draw-out disputes.
How can tariffs affect Australian businesses?
Australia has worked hard to simplify its trade system and remove compliance burdens. As a result, most goods were imported duty-free, meaning that businesses could invest their resources into proving that imports were eligible for existing tariff preferences and concessions.
However, the changing international landscape is posed to complicate Australia’s trade landscape. Tariff announcements previously have primarily impacted steel and aluminium businesses, with the US imposing a 25% tariff on Australian steel and aluminium exports.
On April 3rd, 2025, Australia received news of the US establishing a 10 per cent baseline tariff on all Australian exports. These blanket tariffs will likely have significant economic implications, with the market gearing up for higher delivery costs, increased consumer prices and major disruptions in supply chains. In response, Prime Minister Anthony Albanese has introduced several measures including $50 million in emergency funding and zero interest loans for affected industries. However, many Australian businesses and individuals still anxiously await further details of how they will be directly impacted.
With the hope for any immediate exemptions in favour of Australia being recently extinguished, Australian businesses may need to act sooner rather than later.
Is there any good news?
The tariff landscape is continually evolving, but, there is work that can be done to mitigate any potential for business harm. Tariffs could mean benefits from new market opportunities, reduced tariffs in other jurisdictions, and improved trade terms with countries other than the US.
Some political leaders have expressed their wish for Australia to move beyond its US relationship and towards other countries impacted by tariffs. For example, Australian-based businesses might benefit from stronger trade relationships with Indo-Pacific partners due to trade diversion effects. This may enhance demand for Australian products in countries imposing retaliatory tariffs on US goods.
This shift can create new opportunities for Australian businesses to expand their market presence and offset some of the negative impacts of US tariffs. This prediction is backed by industry experts, commenting that with trade diversion, they foresee trade to pick up between Australia and other countries.
Essential contracting clauses to help manage tariffs
Businesses can take proactive steps by reviewing the way both existing and future contracts are drafted and by considering inclusion of some or all of the below clauses.
Price escalation clauses with specific terms and mechanisms can be implemented at the beginning of projects to address tariff-induced inflation. The benefits of these clauses include provisions for periodic reviews to reassess or adjust prices as necessary, helping to ensure parties are not locked into unsustainable arrangements due to changing economic conditions.
Termination clauses may increase freedoms for parties where obligations can be halted if certain conditions arise, particularly where prices rise, or additional tariffs are introduced. Such express conditions can be tailored to address both broad and specific changes in market conditions, regulatory shifts or other external factors which may help businesses manage fluctuating costs and preserve collaborative relationships.
Dispute resolution clauses are also useful in managing tariff-related risks, and with clear wording, these clauses can ensure effective risk management and smoother resolution of disputes. Dispute resolution clauses should not be generic, especially tariff uncertainties and instead tailored to specific party needs and business objectives. Inserting carefully drafted negotiation and mediation clauses could also help to maintain positive relationships, especially in ongoing trade. Doing so effectively may also help to avoid costly court proceedings and protect sensitive business information and reputation.
Force majeure clauses are explicit contractual provisions that allows obligations to be discharged where parties are unable to fulfill obligations due to unforeseen events outside of their control, as exemplified in recent global events such as other previously imposed tariffs, and COVID-19. These clauses address events that may prevent or delay performance, not just unexpected costs. However, ambiguity arises in the determination of whether tariffs make performance more difficult or less profitable versus completely impossible.
Amendments related to legislation or tax changes may be more relevant to some businesses than force majeure clauses. To implement these, consider using terms like ‘tariff’ or ‘subject to tax or law changes’ in newly drafted contracts which allows companies to amend contracts, renegotiate, or claim additional costs, instead than defaulting on obligations.
Ultimately, it is crucial to prioritise flexible contracting within businesses to facilitate efficient renegotiation of clauses. This allows expectations to be managed and supports room for adjustments between trade relationships as conditions shift.
What other steps can businesses take?
Outside of contractual amendments, businesses can consider taking the following steps to prepare to mitigate the impact of US tariffs and retaliatory tariffs:
Diversification can leverage stability amongst supply chains by expanding sources of materials from multiple suppliers and exploring new markets. This can mitigate the risk of depending on any one single source and ensure robust business operation.
Nearshoring can reduce reliance on affected international supply chains by deepening engagement with trade alliances closer to your business hub. Not only does this reduce transportation costs and time but allows for greater control over general operations.
Enhancing a local and digital presence may help to capitalise on markets that require less effort than traditional international routes. This approach can reduce dependency on international trade and provide more stable and accessible market opportunities during turbulent times.
Investing in innovation, competitiveness and financial resilience to back your business, showing that your goods or services can prove their worth over cheaper alternatives. This may involve investing in innovative techniques to promote product efficiency and quality whilst strengthening cash flow and debt management. This looks attractive to customers and partners and fosters trust in your ability to sustain your market position and offset the tariff impacts, maintaining that it’s ‘business as usual’.
Legal advice with an international outlook
While drastic changes continue to disrupt the global supply chain, it may take some time for the full effects of these disruptions to be felt. Taking proactive measures now can help mitigate potential negative impacts on your business in the future.
Macpherson Kelley has a dedicated group of lawyers with specific experience advising Foreign Owned Subsidiaries on doing business in Australia. We can provide tailored advice and recommendations on what proactive measures can be put in place to address tariffs and an increasingly volatile market.
Contact our lawyers today.