Letters of Intent

Pankaj Raval (00:03)
Welcome to Letters of Intent. I'm your host, Pankaj Raval, founder of Carbon Law Group. And today I'm joined by my co-host, Sahil Chaudry. Sahil, how are you today?

Sahil (00:10)
I'm doing great and I'm very excited about today's episode. It's about something that sounds technical, but it's quietly reshaping deal risk, pricing models and contract enforcement across industry. Tariffs under what people are calling Trump 2.0.

Pankaj Raval (00:24)
And to frame Trump has said repeatedly, tariffs are the most beautiful world in the dictionary. he loves the word, I don't know I thought groceries was old school word, right? He loves groceries too. Tariff, word. just rolls off the tongue, you know? ⁓ This administration is treating tariffs not as a trade tool, as a core policy weapon.

Sahil (00:30)
That's right, he loves the word Tarrif!

Yeah, exactly. Yeah.

Right.

Pankaj Raval (00:47)
to really trade. So what's happening now. every day coming out of the administration about what's happening with tariffs. They're up, they're down, they're on, they're off. happening?

Sahil (00:56)
Well, we thought he was bluffing. He's not bluffing. And we're not just talking about a few targeted duties. We're talking about a baseline global tariff regime, country-specific penalties, product-specific tariffs, tariff stacking, lot of litigation uncertainty, and a legal environment where contracts are breaking in real time because these tariffs are breaking people's margins and breaking the bank.

Pankaj Raval (01:16)
Absolutely. let's level set So when people hear and they think China, steel, maybe automobiles, the story, is very superficial understanding of tariffs.

Sahil (01:26)
That's right. Under the current framework, there's a 10 % baseline reciprocal tariff on virtually all imports effective since April 2025, unless the country is exempt or as a negotiated carve out. Then layered on top of that are country specific reciprocal tariffs, trans shipment penalties at 40 % secondary tariffs tied to things like Russian, Iranian or Venezuelan oil and product specific tariffs under section 232 that go as high as 100%. If we take India, for example,

On some apparel goods, the tariffs are now, including the tariffs related to the Russian sanctions, are as high as 67%.

Pankaj Raval (02:01)
Wow. And this is just like one tariff, right? I mean, there's issues with tariff stacking as well, right?

Sahil (02:06)
Exactly, that's the First of all, you're subject to the baseline 10 % tariff, and then there are of tariffs that get stacked on top of that, depending on which country you're importing from.

Pankaj Raval (02:17)
That sounds like a mess. So here we are, founders and deal makers. Sometimes to get caught off guard because you don't know really what to expect. can only plan for so much. they don't just affect customs clearance, right? I mean, they affect who eats the commercial agreements.

Sahil (02:32)
Exactly. Supply agreements, distribution contracts, manufacturing contracts, most of them were drafted before this level of tariff volatility was normal.

Pankaj Raval (02:40)
Interesting. So when tariffs spike from 10 % to 40 % or 50 % overnight, parties start asking, can we walk away? Can we suspend performance? Can we reprice unilaterally? changes the whole economics of every deal.

Sahil (02:51)
Exactly, and courts are consistently saying only if your contract says you can.

Pankaj Raval (02:56)
interesting, the importance of contracts, right? This is where people really need to understand what kind of signing and what those terms are, because it can really catch you off guard. So Sahil, this is really where...

the cases we've talked about in the past really matter. KeoSara, ShelterForrest, TPL, why is it all that relevant right now?

Sahil (03:14)
Exactly. The court's position is clear. Tariffs are foreseeable in today's environment. And why does that matter? Because it relates to force majeure clauses. People, very creative attorneys, are trying to figure out what are ways to get out of contracts that are no longer financially viable. Well, one thing you could try is claiming that the tariffs are force an occurrence that couldn't have been contemplated at the time of the contract.

but courts are disagreeing with that position.

Pankaj Raval (03:41)
Interesting, interesting. So force majeure is a valid defense anymore, means companies need to be aware that this is a ⁓ possible risk and need to be essentially addressing that in their contracts.

Sahil (03:51)
Exactly. And under Trump 2.0, that argument is even stronger. You have ongoing Section 232 investigations, rolling executive orders, public terror threats posted on Truth Social. It's almost impossible to argue surprise.

So that means that generic force majeure clauses, acts of government beyond our control, it's just not working.

Pankaj Raval (04:10)
Interesting, effectively these courts are now saying these are market risks, not impossibilities valid under a force majeure defense, essentially.

Sahil (04:18)
That's exactly right. And now let's layer in litigation because this is where things get really unstable.

Pankaj Raval (04:23)
So as of now, the Federal Circuit has said that these tariffs related to fentanyl import and has probably used to say that this is an emergency under the IEPA. It's probably what he used to justify a lot of these tariffs, saying that there's a real threat of these We don't know exactly how big that threat is from China, but I'm sure that's what they're using to justify unquote emergency action under IEPA.

But enforcement essentially continues because of these injunctions are stayed effectively. Is that correct, Sahil?

Sahil (04:52)
That's right, the Supreme Court heard oral argument in November and the decision is pending.

Pankaj Raval (04:56)
So importers are paying tariffs that might be illegal, but if they don't preserve the refund right, then they could lose the money forever, which is kind of scary.

Sahil (05:02)
Exactly.

And so you've been listening to us, you know that we've been talking about preserving your refund rights. It's more important than ever. So that means from a contract standpoint right now, no one knows which tariffs will stick, which will unwind or who will ultimately bear the risk. That uncertainty is deadly for fixed price agreements, which most agreements are.

Pankaj Raval (05:21)
one of the most dangerous parts of this is the tariff stacking.

Sahil (05:24)
Exactly. General duties, section 301, section 232, reciprocal terror of secondary sanctions. Many of these apply simultaneously.

Pankaj Raval (05:32)
And the company might model a 10 % increase and end up with a 45% landed cost jump.

Sahil (05:36)
And if your contract doesn't clearly allocate tariff risk, course assume the performing party accepted it.

Pankaj Raval (05:41)
That's why we're seeing margin erosion into litigation additional costs for a lot of these buyers importing to the U.S.

Sahil (05:47)
Exactly. And so that's what's going on is people are trying to break their contracts so that they don't lose tons of money, but that's turning into litigation. So let's get practical to advise some of our clients. We have many clients who are Pankaj, as of December 2025, what should companies actually be doing?

Pankaj Raval (06:05)
They've got to be auditing the contracts. Everyone who is importing goods, importing from overseas, you've got to audit your contracts. You've got to look at what are those terms, review your fixed price language, review your force majeure clauses, review your change in law provisions, your silence around tariffs, dispute resolution, where are disputes being handled, how are they being handled? All these things really matter there could likelihood of disputes here. And also, just being careful.

about how much you expose yourself and extend yourself with some of these deals. if you're taking on a lot of credit, a lot of financing that has high interest rates, and now margins are eroded, gotta be aware of that, and you gotta be probably a little bit more conservative with your outlook forecasting when it comes to 2026.

Sahil (06:45)
I think what we're going to see is tariff allocation provisions in contracts that are explicit. Up until now, they have played an implicit role, but they have not played an explicit role. And I think now we're going to see tariff risk will be allocated more clearly. We'll have to define who pays. Can the prices be adjusted if there's an increase? Is there a termination right? Is there a renegotiation trigger? The problem is that these tariffs will change in real time. And so that means these contracts have

to become living, breathing documents that can respond to tariff risk.

Pankaj Raval (07:16)
Absolutely, which is another reason I think you need to working with your counsel on these and tracking them in real is not a one-off transaction. This is an ongoing discussion and review that companies need to be engaged with their counsel or with internally someone to make sure that they're on top of these ⁓ and aware of the provisions in their agreements. So big takeaway is this.

Tariffs under Trump 2.0 are not an anomaly. They are a trade environment going forward, and they are going to be part of international trade for the next few years. So you've got to make sure that your contracts this and you incorporate this into your forecasting.

Sahil (07:53)
That's exactly right. And the courts will not rescue you from bad drafting or not taking this into account. So risk allocation has to happen within your contracts or you have to bake that risk into the price. If your agreements haven't been updated for this tariff regime, now is the time, not after the next executive order.

Pankaj Raval (08:12)
All right, Sahil. So I think that, we'll end it is our conversation on tariffs. We hope you guys found it interesting and useful. I think it definitely is some valuable advice and insight, and I think applicable to many different industries, not just tariffs, but

there's uncertainty in many different industries and many different regulated industries. So you want to make sure you're understanding what those laws are, how they're changing, and there's no one better to do that than your legal counsel to advise you on that. If you have questions, concerns, please share them with us. always happy to hear from our listeners. Again, thank you again for taking the time to listen to us today. I am Pankaj Raval, founder of Carbon Law Group, and this is Letters of Intent.