Tariffs, Contracts and the Negotiation Imperative: Why the Old Playbook Won’t Work

New tariffs and economic shocks are placing immense strain on business contracts and relationships. For companies entangled in long-term agreements, the instinctive reaction—litigating or engaging in a zero-sum renegotiation over who absorbs the increased costs—will likely result in mutual losses. The traditional adversarial model, where one party’s gain is another’s loss, is fundamentally unsuited to these challenges. Instead, business leaders and sophisticated legal professionals must recognize that their best move is not fighting over shrinking margins, but rethinking the deal itself.

Enter Vilfredo Pareto, whose principle of optimal resource allocation reminds us that in almost any agreement, value can be unlocked by creatively restructuring terms rather than merely redistributing burdens. Rather than a rigid standoff over who bears what share of tariff-induced costs, companies should explore ways to trade across issues—adjusting delivery timelines, payment terms or volume commitments, or even expanding cooperation in other business areas. When approached with a problem-solving mindset, renegotiation is not just salvaging existing contracts, but also improving them to deliver better outcomes for both sides.

Consider two real-world examples of mediated contract renegotiation:

1. Manufacturing supply chain adjustment: A European electronics manufacturer dependent on Chinese suppliers faced an unexpected tariff increase. Instead of terminating the contract or engaging in a legal battle, mediation facilitated a creative solution. The manufacturer agreed to longer payment terms, allowing the supplier to manage cash flow more effectively, while the supplier, in turn, sourced certain components from a different country to partially offset the tariff impact. Both parties benefited—costs were mitigated without jeopardizing the supply chain.
   
   
2. Retailer/Wholesaler partnership pivot: A U.S.-based retail chain was locked into a long-term contract with a South American coffee producer when new import duties threatened to make the deal unprofitable. A mediated negotiation uncovered a way to rebalance the agreement: The retailer agreed to expand its product line to include premium, higher-margin coffee varieties from the same producer, while the supplier adjusted its pricing structure to accommodate some of the tariff increases. Instead of a bitter dispute or contract termination, both businesses enhanced their offerings and profitability.

However, unlocking this value required more than just financial creativity—it required cultural proficiency. In the European-Chinese negotiation, power distance played a crucial role. The North European company, accustomed to egalitarian structures, initially struggled to engage with the Chinese supplier’s hierarchical approach to decision-making. The mediator, understanding this dynamic, helped the European executives adapt their negotiation style, ensuring they engaged with the right decision-makers and demonstrated respect for seniority—ultimately enabling a cooperative outcome. In the South American case, cultural dimensions of individualism and uncertainty avoidance were at play. The U.S. retailer, operating in a highly individualistic and transactional business culture, had to adjust to the coffee producer’s preference for long-term relationships and aversion to abrupt changes. The mediator facilitated discussions that emphasized mutual trust and stability, leading to a deal that provided certainty for the producer while allowing the retailer to grow its product offerings.

At the same time, it’s important to acknowledge that these strategies have limitations and do not guarantee success in every situation. Power imbalances, bad-faith negotiating tactics, or restrictive legal and regulatory frameworks can undermine even the most creative and cooperative efforts. Moreover, while the examples provided here demonstrate how culture can affect negotiations, they only scratch the surface of cultural complexities that can arise in international business. Further empirical research—including robust case studies and data from varied industries—would help validate and refine these approaches, as would more focused exploration of trust-building strategies for companies of all sizes. In highlighting both the promise and the pitfalls of such negotiations, we can raise public awareness of how renegotiation and cultural understanding can unlock new value—even if many businesspeople (and the general public) have yet to fully recognize the potential.

But here’s the catch: This is a high-trust endeavor. The ability to unpack these discussions successfully depends on open communication, strategic flexibility and cultural awareness—qualities that experienced mediators bring to the table. Professionals skilled in cross-cultural dynamics and business negotiations can help parties move beyond rigid positions to explore solutions that maximize collective value.

For businesses facing today’s global uncertainties, the most valuable resource is not just capital or contracts—it is the ability to negotiate with creativity and trust. Future studies, alongside new training and curricula for lawyers, mediators and business leaders, will be crucial in honing these skills and ensuring that win-win negotiations become more than just aspirational talking points.

Giuseppe De Palo, Esq., serves as a JAMS mediator, arbitrator and neutral evaluator, handling bankruptcy, business/commercial, employment, financial markets, intellectual property, international and cross-border, personal injury/torts, professional liability and telecommunications cases. With over 30 years of experience, Mr. De Palo is a renowned international mediator who has mediated more than 2,500 domestic and cross-border disputes in over 60 countries, involving individuals from more than 90 nations.