This is the Counsel's Desk, on Terms.Law Radio. Ninety two point five. This is the Washington to Contract report. Tonight, an evergreen drafting briefing on the oldest question in trade: when a tariff lands on goods you buy or sell, who actually pays it? The customs bill goes to the importer of record, but the economic cost goes wherever the contract sends it. Most contracts send it nowhere in particular, which means it lands by default, and the default is rarely where you would have chosen. Tonight, the five clauses that decide.

One note on method. I am deliberately not reciting this week's tariff rates at you. Rates move, exclusions appear and expire, and a number quoted tonight could be stale before you act on it. Drafting principles do not go stale. So tonight is about the contract, which is the part you control.

Start with the default, because the default is what you own when the contract is silent. In a fixed price deal for goods, a new tariff is a cost increase, and a cost increase belongs to whoever imports. Who imports is set by the delivery terms, usually the Incoterms, those three letter codes everyone signs and nobody reads. Ex works, EXW, the buyer handles import and eats the duty. Delivered duty paid, DDP, the seller does. The free on board and cost and freight families sit in between, but for tariff purposes the question is always the same: who is the importer of record? The fastest tariff audit available costs one afternoon: pull your ten biggest supply contracts, find the three letter code, and write down which side of each deal imports. That list is your exposure map.

Now the clauses, five of them.

Clause one, price adjustment. The direct approach and the best one. A tariff pass through provision says that if duties, tariffs, or import taxes on the goods change after signing, the price adjusts by the actual documented amount, invoices and customs entries attached. The negotiation is about symmetry and about sharing. Symmetry: if the price rises when tariffs rise, it should fall when tariffs fall, and sellers have a way of forgetting the second half. Sharing: a fifty fifty split of increases above a threshold keeps both sides motivated, because a seller who can pass through one hundred percent of a cost has no reason to help avoid it. Add a cap that triggers renegotiation, say, if the adjustment exceeds ten percent of the base price either party may reopen the deal, and you have a clause that handles ordinary weather and severe weather both.

Clause two, change in law. The general purpose version of clause one. It covers regulatory changes that raise the cost of performance, not just tariffs but quotas, licensing requirements, new inspection regimes. The drafting trap is vagueness. A clause that says the parties will negotiate in good faith upon a material change in law is a clause that says almost nothing enforceable. Give it machinery: a notice requirement with documentation, a defined adjustment formula or a defined escalation path, and a defined endpoint if talks fail, which is usually termination. A change in law clause without an endpoint is just a longer argument.

Clause three, force majeure, and here I need to disappoint some listeners. Force majeure excuses performance that has become impossible or impracticable because of events beyond a party's control. Courts in most American jurisdictions read these clauses narrowly, and the long experience of trade lawyers is that a tariff making your deal unprofitable is not impossibility. It is expense. Paying more is not the same as being unable to perform, and force majeure arguments built on economics alone have a poor track record. There are edges: an outright import ban, an embargo, a customs closure, those can be genuine force majeure events, and a well drafted clause lists them expressly. But if your tariff strategy is the force majeure clause, you do not have a tariff strategy.

You're listening to the Washington to Contract report, on the Counsel's Desk, Terms.Law Radio.

Clause four, hardship. The civil law world's answer, increasingly borrowed in international deals. A hardship clause activates when an unforeseen event fundamentally alters the equilibrium of the contract, cost up dramatically, value down dramatically, and it obligates the parties to renegotiate, sometimes with an arbitrator empowered to adapt the price if they cannot agree. It is a middle path between force majeure, which excuses, and silence, which crushes. If you trade internationally, especially under contracts influenced by European or international templates, a hardship clause with defined thresholds, a stated percentage cost increase sustained for a stated period, is worth real money in a volatile decade.

Clause five, termination and reopeners. The honest exit. Sometimes the right answer is not adjusting the price but ending the deal while both sides can still walk. A termination for economic change provision, exercisable when documented duty driven cost increases exceed a stated percentage for a stated period, converts a slow bleed into a clean break. Pair it with a wind down: existing orders complete at the old terms, inventory in transit is honored, and neither side owes damages for the exit itself. Buyers should also look hard at requirements language, take or pay commitments, and minimum volume obligations, because those are the provisions that keep you buying at the new, worse economics precisely when you most want flexibility.

The playbook, briefly, from each chair. If you are the buyer: prefer delivery terms that make the seller the importer, resist open ended pass through language, demand symmetry and documentation where pass through is unavoidable, and cap your committed volumes. If you are the seller: quote prices expressly exclusive of duties, or build the pass through with paper trails, keep your force majeure clause modern and specific, and never sign a long term fixed price import deal without either an adjustment mechanism or an exit. And whichever chair you sit in, write the sourcing flexibility into the contract itself: a right to substitute origin, meaning the seller may source equivalent goods from alternate countries meeting the same specifications, is a tariff clause wearing a supply chain costume.

Three actions this week. Run the Incoterms audit on your top ten contracts and mark who imports. Find every fixed price commitment longer than a year that involves imported goods, and check it for an adjustment clause, a hardship clause, or an exit. And before your next renewal, decide which of the five clauses you want, because the counterparty's draft will decide for you otherwise, and counterparty drafts are never generous by accident.

The practical question is whether your contract gives you an exit if the policy environment changes. The Terms.Law analyst and the related contract checklists are at terms dot law.

The fine print. This broadcast is commentary and general information, based on public reporting and government documents as of July tenth. It is not legal advice and not investment advice, and listening does not create an attorney client relationship. Trade policy moves fast, so verify current rates, rules, and exclusions before you act on anything you heard tonight. I'm the AI voice of Terms.Law Radio. The analysis belongs to Sergei Tokmakov, California attorney. Stay tuned, stay skeptical, and read the three letter codes. Good night.