On April 2, 2025 US President Trump signed an executive order establishing a sweeping tariff of 10% on all goods imported to the USA and additional tariffs for a list of 100 countries. These tariffs are the highest ever set by the USA and have been described as the biggest change to global trade in 100 years.

The 20% tariff on EU goods entering the USA enters into force at "12:01 a.m. eastern daylight time on April 9, 2025", that is 16:00 GMT.

How do tariffs affect EU businesses?

A 20% levy on all exports means that they are automatically 20% more expensive and therefore exporters may see both cancellations of existing orders and requests for price reductions. At the same time goods no longer exported to the US would need to be either sold to another market or internally (economist argue that an eventual excess on internal offer may result in a price reduction).

The EU has yet to respond to President Trump's purported "Trade War". So far, the EU's response has been limited to the prior 25% tariff on steel an aluminium imports put in place by the US. The response was to allow the suspension of existing 2018 and 2020 countermeasures against the US to lapse on 1 April. With respect to the 20% tariff the Commission has put in place a number of countermeasures which target a range of US products and will come into force gradually from April, 15 until December 1, 2025. In the meantime they have renewed the offer to have 0% reciprocal tariffs which President Trump has said are "not enough". So far the Commission's reaction has been less aggressive than initially expected. Their preference seems to be to reach a deal but have stated that they are prepared to respond with reciprocal tariffs. If this were to happen EU importers may find themselves in a position where they would like to break existing supply agreements.

In either case, supply agreements, investments, acquisition deals in place, which are due to close and many other businesses may also be affected if the Target or business is affected by US or eventual EU tariffs.

How to break free from an existing agreement which has become too onerous?

After the experience of the COVID-19 pandemic we all had some experience with the various legal recourses to break away from a binding agreement. However, the situation is now very different and what worked for COVID-19 will not necessarily apply to the tariff crisis:

  • Force Majeure: Force majeure is present in almost every jurisdiction, although with varying requirements. Under Spanish law, a force majeure event does free a party from its obligations. However, no force majeure is present in the tariff situation. Spanish law requires a complete impediment to performance which is both unexpected and unavoidable. Tariffs do not make performance impossible, just more expensive. There is also an argument that they are not unexpected as President Trump had been announcing them for a while.
  • "Rebus sic stantibus": In cases where performance is not impossible but has become exorbitantly onerous the "rebus sic stantibus" doctrine may apply. The rebus sic stantibus clause allows the modification of the terms of a contract when, due to the passage of time, new circumstances appear that were not foreseen at the time the agreement was entered into. When an extraordinary modification of the circumstances appears, which causes a gross disproportion between the parties' obligations, then the rebus may be applied. The rebus sic stantibus clause will only be applied if there is no other possible remedy or in the absence of an express agreement between the parties. Traditionally, the Supreme Court applied rebus very restrictively and in contracts of long duration. The advent of the pandemic changed this and saw a more flexible application of COVID in contracts of shorter duration.Whether the rebus can be applied on an agreement further to a 20% tariff will need to be evaluated in a case by case basis. Mainly to determine if that 20% increase in cost can be absorbed by the importer or is ruinous. This will depend on the type of product and market and the terms of the supply agreement.

  • Contractual remedies: the parties may have included clauses to deal with materially adverse effects, such as a material adverse effect clause (MAC) or other contractual remedies. These are generally valid under Spanish Law but will be interpreted restrictively. Whether or not they can be applied will depend on the drafting. MAC clauses generally specify the circumstances in which they can be applied. More specific clauses tend to be more successful than general ones. If the clause covers a situation such as 20% increase in costs or a similar provision, they will be applied.

  • Negotiation: when no legal or contractual remedies are available negotiation with the other party is the last recourse. Spain enacted a reform of the Civil Procedural Act which came into force on April 3 which requires the parties to negotiate a solution to their conflicts before they file a claim in court. This is a procedural requirement to all civil and commercial matters (save for enforcement) and the claim will not be admitted by the court unless the parties show they have tried to solve their differences, out of court, in good faith. This applies to litigation in Spain when at least one of the parties resides or is based in Spain.

  • The Spanish Government has recently approved a set of measures (mainly state backed loans) to alleviate the effects of the US tariffs on Spanish companies. Royal Decree-Law 4/2025 which entered into force on April 9, 2005 includes credit lines and state guarantees for loans for business entities that will be significantly affected by the new tariffs. The budget for these lines is 5,000 million euros. Also included are financial instruments to support the internationalisation of companies, to the value of 720 million euros and 2,000 million euros in credit insurance and export risk coverage.

Importance of EU-US trade

Total bilateral trade in goods between the US and the EU was €851 billion in 2023. The EU exported €503 billion of goods to the US market and imported €347 billion. This resulted in a goods trade surplus of €157 billion for the EU.

However, when services (currently not subject to tariffs) are taken into account the surplus is a €109 billion deficit for the EU. In 2023. The EU exported €319 billion of services to the US, while importing €427 billion from the US.

A rapidly changing world

These are just some legal considerations for contracts in respect of the existing US tariffs. However, the effect of the tariffs is not expected to be limited to supply agreements. They are also expected to increase prices, lower demand and make some companies less valuable. They have already had an effect on markets worldwide affecting stability, liquidity and pushing investors to safer bets such as government bonds and secure commodities such as gold. Less liquidity and more uncertainty also means that some deals may be put on hold.

It is yet early days to see if these effects are long lasting but, as other countries react and the situation changes obtaining legal advice at an early stage becomes key.