can I Break My Supply Contract? — any advice?

I run a small electronics accessories business. I have a 2-year supply contract with a Chinese manufacturer that was signed in March 2025 at a fixed price per unit. The new tariffs that went into effect in early 2026 have effectively doubled my landed cost on these goods.

At my current retail prices, I am losing money on every unit sold. I cannot raise prices enough to offset the tariffs without losing all my customers to competitors who source domestically.

My contract has a force majeure clause but it does not specifically mention tariffs or government trade actions. Can I invoke force majeure? Can I use commercial impracticability (UCC Section 2-615) to modify or exit the contract? My manufacturer says I am locked in and they will sue if I stop ordering.

This is one of the most common questions I am getting right now from small business clients. Here is the honest legal analysis:

Force majeure: Unless your clause specifically lists tariffs, trade restrictions, or government actions, it is unlikely to cover this situation. Courts have generally held that tariff increases are foreseeable risks in international trade, especially given the trade tensions of the past several years. The argument is stronger if the tariff increase was sudden and massive (100%+ increase), but even then, courts are skeptical.

Commercial impracticability (UCC 2-615): This doctrine requires that performance has become impracticable due to an unforeseen contingency. The key word is “impracticable,” not “unprofitable.” Courts have consistently held that increased costs alone, even dramatic increases, do not make performance impracticable. You would need to show the tariffs made performance fundamentally different from what was contemplated.

Practical options: (1) Negotiate with your manufacturer for a price adjustment — they may prefer renegotiation over losing the relationship entirely. (2) Review whether the contract has a material adverse change clause. (3) Consider whether the tariff changes your delivery obligations (e.g., if Incoterms shift duty responsibility). (4) Consult a trade attorney about whether any tariff exclusions or exemptions apply to your specific products.

Same boat here with auto parts. What I ended up doing: I went back to my supplier and proposed a cost-sharing arrangement where we split the tariff impact 50/50 until the contract expires. They agreed because they did not want to lose a reliable buyer and find new customers in a shrinking market.

Also look into tariff engineering — sometimes reclassifying your product under a different HTS code can significantly reduce or eliminate the tariff. A licensed customs broker can evaluate this. I saved 15% on one product line just by changing how we classified the goods.

Adding to the excellent advice above: check whether your products qualify for any of the tariff exclusion processes. The Office of the U.S. Trade Representative periodically grants exclusions for specific products, and the 2026 tariff round includes a new exclusion request process.

Also, if you are looking at future contracts, ALWAYS include a tariff adjustment clause going forward. Standard language would say something like: “If any new tariff, duty, or trade restriction imposed after the date of this agreement increases the landed cost of goods by more than X%, the parties shall renegotiate pricing in good faith.” This is now standard practice in international supply agreements.