International Business

From higher import costs to delays in critical materials, trade uncertainty can significantly affect profitability, competitiveness, and long-term planning. For Texas companies — particularly those in the energy, manufacturing, technology, and logistics sectors — proactive legal and commercial strategies are essential to mitigate risk and maintain stability.

The Economic Impact of Tariffs and Trade Uncertainty

1. Higher Input and Production Costs
Tariffs directly increase the cost of imported goods, components, and raw materials. Manufacturers in sectors such as oilfield equipment, electronics, and construction materials often experience thinner margins as suppliers pass along tariff-related price increases.

2. Supply Chain Disruption
Trade restrictions and shifting regulations can delay shipments, create bottlenecks at ports, or force companies to find new suppliers on short notice. These disruptions can ripple through production schedules and customer commitments.

3. Price Volatility and Uncertainty
Frequent changes to tariff schedules or trade agreements make it difficult for companies to forecast costs accurately or lock in long-term pricing. Uncertainty also affects investor confidence and contract negotiations.

4. Currency and Market Fluctuations
Trade instability can influence currency exchange rates, raising costs for imported goods or reducing the competitiveness of exports. Texas exporters — especially in energy and agriculture — may face reduced demand in foreign markets subject to retaliatory tariffs.

Best Practices for Mitigating Tariff and Trade Risks

While no company can control international trade policy, Texas businesses can take strategic, legal, and operational steps to reduce exposure and improve resilience.

1. Diversify the Supply Chain

Relying on a single foreign supplier or market can magnify trade risks. Consider:

• Sourcing alternative suppliers in different countries to reduce dependence on any one tariff zone.

• Exploring domestic or regional suppliers for critical components, even at slightly higher base costs.

• Developing dual-sourcing strategies to ensure continuity during disruptions.

2. Review and Optimize Tariff Classifications

Misclassified imports can lead to unnecessary duties or penalties. Conduct a compliance review of your tariff codes, country-of-origin declarations, and customs documentation. A minor adjustment can often yield significant savings or qualify goods under preferential trade programs.

3. Utilize Free Trade Agreements and Duty Relief Programs

Take advantage of existing agreements such as USMCA (United States–Mexico–Canada Agreement), which offers duty-free treatment for many goods produced in North America. Companies may also qualify for foreign trade zones (FTZs) or duty drawback programs, which allow refunds of duties paid on imported goods that are later exported.

4. Build Flexibility into Commercial Contracts

Well-drafted contracts can help businesses absorb or pass through tariff-related costs. Consider:

• Force majeure clauses that include trade restrictions, export bans, or tariff surcharges as qualifying events.

• Price adjustment mechanisms that allow for renegotiation if tariffs or trade laws materially affect cost.

• Termination and renegotiation rights triggered by prolonged supply interruptions.

• Currency fluctuation provisions for cross-border transactions.

By addressing these issues up front, companies can reduce disputes and maintain healthy supplier relationships.

5. Strengthen Supplier and Customer Communication

Transparency builds trust. Maintain open dialogue with key suppliers and customers to anticipate challenges, coordinate shipments, and share updates on tariff-related impacts. Early collaboration can prevent downstream disruption.

6. Integrate Trade Compliance and Risk Management

Establish an internal trade compliance program to monitor tariff developments, export restrictions, and sanctions lists. Assign clear responsibilities to legal, finance, and procurement teams to evaluate risks and ensure consistent compliance practices.

7. Evaluate Reshoring or Nearshoring Opportunities

For some Texas companies, shifting production or assembly closer to home can reduce exposure to trade volatility. The U.S.–Mexico corridor offers proximity advantages, reduced logistics costs, and predictable trade conditions under USMCA.

Best Practices for Drafting Commercial Contracts Amid Trade Volatility

A well-structured contract can serve as a company’s first line of defense against tariff-related uncertainty. Vanguard Legal PLLC recommends incorporating:

• Detailed force majeure language covering tariffs, embargoes, and government trade actions.

• “Tariff pass-through” clauses allowing parties to adjust pricing if import duties increase.

• Material adverse change (MAC) provisions giving flexibility to renegotiate or terminate under extreme conditions.

• Governing law and dispute resolution clauses tailored for international enforcement.

• Supply continuity provisions obligating suppliers to provide reasonable notice before interruptions.

These provisions protect cash flow and allow businesses to adapt as global trade dynamics evolve.