US Tariffs, Sanctions and Commodities

The commodities sector is facing geopolitical headwinds. In the first of two articles, we explore the impact of tariffs on the sector and consider how sale and purchase contracts can help. In our next article, we will consider the impact of sanctions.

US tariffs – where are we now?

On 2 April 2025, President Trump announced his long-promised tariffs. He declared a baseline tax on imports across the board beginning on 5 April 2025, and higher rates for many nations taking effect from 9 April 2025. The 10% baseline began on 5 April as planned. Hours after the higher rates went into effect on 9 April, however, the majority of these were suspended for 90 days, until 9 July. These have now been adjusted and the suspension further extended until 1 August, providing more time for trade deals to be reached.

Initially, China was the exception to this respite. President Trump continued to raise tariffs against China. China retaliated, culminating in the US imposing 145% tariffs against China and China imposing 125% tariffs against the US. On 12 May, the two nations agreed to cut tariffs by 115% for 90 days, beginning on 14 May and ending on 12 August.

On 14 July 2025, President Trump threatened to impose “very severe” tariffs on Russia, if it does not end the war with Ukraine within 50 days.

However, the legitimacy of President Trump’s tariffs is being questioned by US courts. On 28 May, the Court of International Trade ruled that some of the steep tariffs that Trump had imposed were illegal, including those imposed on Canada, Mexico and China for their alleged role in the fentanyl trade. A federal appeals court in Washington DC halted the decision of the Court of International Trade, temporarily reinstating the tariffs. It remains to be seen whether these tariffs will be permanently reinstated on appeal or by the Supreme Court.

Nevertheless, the President is showing no signs of reducing his use of tariffs as a political tool. Howard Lutnick, the US commerce secretary, said on 1 June that Trump would find alternative means to impose tariffs, even if his current methods are ultimately ruled unlawful.

What are the consequences for the commodities sector?

Spread of tariffs

The imposition of tariffs by one country can have escalating economic and political repercussions, particularly if that country is a global superpower. Affected countries often retaliate with their own measures, or the threat of measures, as we have already witnessed, from China, the EU and Canada among others, leading to trade wars and increased geopolitical tensions,

Another notable feature of President Trump’s tariffs has been the number of commodities affected.  Rather than focussing on a particular trade or type of commodity, their reach and impact has been widespread, from oil to copper and from steel to coffee.

Supply chain and trading patterns affected

We are already seeing a significant impact on both global and local supply chains and trading patterns. For example, the threat of US tariffs on copper from 1 August has caused a shift in global trade, with a huge amount of copper being shipped into the US ahead of the deadline, causing shortages in other parts of the world.

In a more localised example, the Trump administration imposed a 25% tariff on countries that import Venezuelan oil, which began on 2 April. This move was more targeted, aimed at increasing pressure on the Maduro regime by reducing Venezuela’s oil revenue, severely impacting the Venezuelan economy.

Price volatility

A major knock-on effect of tariffs for commodity traders is price volatility. For example, Brazil is the world’s largest exporter of coffee and the US is its biggest customer, so when President Trump announced 50% tariffs on Brazilian imports this month, the price of coffee futures jumped in response.

How can commodity sale and purchase contracts respond to the impact of tariffs?

In light of the frequently changing tariff landscape, we suggest 5 key considerations for both existing and new contracts:

Existing contracts

We recommend conducting a regular review to monitor which of your trading contracts are most likely to be affected. For those you identify, consider:

1. Who will bear the burden of tariffs? (Typically, we would expect import taxes to be for the buyer and export taxes for the seller.)
2. If one party is severely disadvantaged by the impact of tariffs and there is a risk of insolvency, does the contract include related termination provisions?
3. What is your preferred outcome if a contract becomes at risk? Is there a price review clause? Would renegotiation be preferable to termination? If additional time and concessions are granted to a counterparty, these should be carefully recorded in writing.
4. If in a contractual chain, are you back-to-back?
5. Will your hedging strategy be affected?

Future contracts:

1. Negotiate a clear allocation of risk and eliminate uncertainties wherever possible.
2. Include a clause allocating responsibility for paying tariffs and a price review clause with clear terms as to when it will be triggered and what will happen if agreement cannot be reached following a price review.
3. Consider whether you should include specific provisions for termination in the event of counterparty insolvency. Will this be an advantage, especially if you are in a contractual chain – will it impact your ability to fulfil other contracts?
4. Where possible, make sure you are back-to-back up and down any contractual chain, particularly in relation to force majeure, termination and price review.
5. Consider how your hedging strategy might be affected.

What about force majeure?

Can the imposition of tariffs constitute a force majeure event, allowing one party to suspend performance? Ultimately, this will depend on the wording of the clause and the factual circumstances in each case.

Historically, English courts have not allowed suspension of performance in reliance on force majeure due to a change in global economic circumstances affecting the profitability of a contract, or how easily the parties’ obligations can be performed. This is because they distinguish between genuine impossibility and financial inconvenience. The courts will not generally allow a party to avoid contractual performance because of decreased profitability, which is likely to be the impact of tariffs.

It is more likely that a party will be able to rely on force majeure to suspend performance as a result of tariffs if (i) the imposition of new or increased tariffs is expressly included as a relevant force majeure event in the contract; and (ii) the contract provides that a party can suspend performance if a force majeure event merely hinders, rather than prevents, it from performing its obligations.

Our Tariffs 101 article discusses this question further.

Conclusion

It seems likely that the US will continue to use tariffs, and the threat of tariffs, as a strategic tool throughout President Trump’s term of office. Traders can use their contracts to mitigate the risk and uncertainty that fluctuating tariffs present.

Research conducted by Charlotte Soanes, Trainee Solicitor.