Lawyers Gear Up for Possible Tariff Impact

Reviewing Contracts Amid Rising Tariff Risks

Mining companies worldwide are actively reviewing contracts involving energy supplies and critical materials to assess the potential impacts of sudden tariffs. A key focus is on contractual obligations and the viability of force majeure clauses. These clauses could allow companies to suspend or terminate contracts if tariffs drastically alter the economics of supply arrangements.

Navigating M&A Transactions Under New Economic Pressures

Tariffs and export controls are also reshaping mergers and acquisitions (M&A). Deals previously agreed upon may face uncertainty if tariffs significantly distort the transaction economics. Companies must thoroughly evaluate whether transactions remain feasible under dramatically altered financial conditions.

Shifts in Contractual Duration and Pricing Models

Given current geopolitical tensions, long-term fixed-price contracts are increasingly viewed with caution. Mining companies are reconsidering contract durations, moving away from traditional long-term commitments toward shorter, more flexible arrangements. Spot pricing models are gaining traction, reflecting market uncertainties.

Common Adjustments and Emerging Contractual Trends

The least favored adjustment, but increasingly common, involves contract terminations through force majeure. High-profile cases include MP Materials’ decision to cease exporting rare earth minerals for refining in China, driven by geopolitical concerns and subsidy considerations.

More frequently, however, companies are adding flexibility into their contracts. Clauses permitting price renegotiation under unforeseen tariff conditions are becoming essential. These adjustments aim to mitigate economic disruption while maintaining contractual relationships.

Market Distortions and Legal Challenges

Volatility in commodity markets, exemplified by the 2022 nickel crisis at the London Metal Exchange (LME), highlights the increased risks for traders. Rapid price fluctuations led to market suspensions and substantial litigation. This precedent underscores the importance of factoring market stability clauses into contracts.

Reevaluating Force Majeure and Economic Hardship Clauses

Force majeure clauses, traditionally not covering purely economic factors like cost increases, are now under scrutiny. Companies must consider new contractual provisions explicitly addressing severe tariff impacts, providing clearer grounds for renegotiation or temporary suspension of obligations.

Anticipating Increased Litigation and New Legal Precedents

The evolving trade environment suggests that disputes and litigation will rise, creating new legal precedents. Companies and lawyers must prepare for these developments by refining contractual language to better address tariff-induced economic shifts.