Tariff Risk for Small Business: Legal Strategies for Navigating Cost Surges and Contract Trouble
- Robert J. Gonzales
- Aug 10
- 4 min read
Updated: 4 days ago
When tariffs spike mid-contract, we help clients rethink, renegotiate, and regain control.
By Hannah Berny, Business Restructuring Attorney with EmergeLaw, PLC
Tariffs Are Reshaping Business Risk
Across industries, sudden changes in tariffs and trade policies are destabilizing operations. The pain is particularly acute for small and midsize businesses that rely on overseas materials or global supply chains.
We’re seeing it across industries:
A custom manufacturer sources nearly all materials overseas. Lead times can stretch six months or more, but contracts lock in prices at signing.
A distributor builds forecasts based on historic pricing, only to face a 30% spike in duties mid-year.
A contractor quotes jobs that won’t break ground for 9–12 months, and then faces cost overruns they can’t pass through.
These aren’t isolated problems. They’re part of a broader shock hitting businesses that operate on thin margins and long lead times. When costs spike overnight and pricing can’t adjust, liquidity dries up. Legal obligations become traps. And formerly strong businesses find themselves in financial distress.
Why Contract Terms May Not Protect You
Businesses that have some flexibility in their customer contracts may be able to pass along increased costs. But many contracts don’t account for tariffs, especially older templates. Worse still, the lead time between contracting and fulfillment often exceeds the pace at which trade policy changes.
When there is no clear right to adjust prices, companies must dig deeper.
Our approach always begins with a careful review of your existing contracts and a discussion of your historical course of dealing. In some cases, the way you and your customer have done business in the past may support an argument for adjustment, even when the contract language seems rigid. In others, a legal argument for relief may be available under commercial law.
Legal Tools for Navigating Tariff Shocks
When rising costs due to tariffs leave businesses underwater, several legal doctrines and contractual provisions may help:
Force majeure or hardship clauses: If properly drafted, these may excuse or adjust performance due to regulatory changes or new tariffs.
Commercial impracticability under UCC §2-615: Offers potential relief where performance has become unreasonably difficult or expensive due to unforeseen government action.
Course of dealing or usage of trade: In some cases, a long-standing pattern of behavior between buyer and seller can override strict contract language.
Contract renegotiation: With the right leverage, parties may be open to restructuring agreements. That leverage often increases when financial distress is on the table.
When Restructuring Becomes the Only Path
If your business is stuck holding the bag, with no pricing flexibility and no legal wiggle room, the result can be devastating. We’ve seen clients lose key contracts, face lawsuits, and suffer severe cash flow crises because tariff costs pushed them past the breaking point.
In these cases, a restructuring may be the only viable path. Chapter 11 gives management critical breathing room to restructure debt, adjust operations, and preserve enterprise value. For smaller businesses, Subchapter V offers a streamlined, less expensive restructuring process. It can be used to reject burdensome contracts, reduce unsecured debt, and create breathing room for operational recovery.
Even the threat of a well-planned restructuring can shift the dynamics of a negotiation. We often help clients use that leverage to reach better outcomes without ever filing a case.
How We Help Businesses in Crisis
Our firm works with manufacturers, distributors, contractors, and service businesses navigating the ripple effects of tariffs and trade policy changes. We:
Review and interpret key contracts to find opportunities and risks;
Evaluate legal defenses or arguments for contract modification;
Assist in negotiating revised terms with suppliers and customers;
Restructure obligations or prepare for Subchapter V filings when necessary.
Our goal is to help you stay in control, preserve value, and avoid worst-case outcomes.
FAQs About Tariff-Related Business Challenges
What can I do if tariffs make my current contracts unprofitable?
Start by reviewing your contracts for any force majeure or price adjustment clauses. If those don't apply, doctrines like commercial impracticability under UCC §2-615 may offer relief. In some cases, restructuring may be necessary.
Can I renegotiate a fixed-price contract if my costs go up due to new tariffs?
Possibly. Contracts without pricing flexibility are harder to renegotiate, but a past course of dealing or legal defenses like impracticability may help. Legal review is essential.
How do businesses plan pricing with unpredictable tariffs?
Many are shifting to flexible pricing models, adding tariff-specific clauses, and requiring deposits. Updating your contract templates is key to building resilience.
Can Chapter 11 help if tariff-related costs put me underwater?
Yes. Chapter 11, particularly Subchapter V for smaller businesses, allows you to restructure contracts and debts while maintaining operations. It also strengthens your position in negotiations.
Conclusion: Legal Strategies Matter When Tariffs Disrupt Business
Tariff volatility is creating ripple effects across industries, squeezing margins, straining relationships, and testing the limits of contracts written in more stable times. The legal path forward depends on each business’s situation, but one thing is clear: when the rules shift mid-game, understanding your legal position is essential.
Hannah Berny is a partner with EmergeLaw, PLC, representing small and mid-sized businesses in financial distress. She focuses on loan workouts, Subchapter V and Chapter 11 bankruptcies, and legal strategies to address cost surges, supply chain disruptions, and tariff-related contract disputes. Hannah works closely with business owners and managers to renegotiate agreements, restructure debt, and protect operations when trade policy shifts or market volatility put companies at risk.