Trade tariffs – The supply chain and joint venture disputes risks explained

The rules of global trade are being recast, with significant tariffs and levies being imposed, revoked and reintroduced between major trading partners at short notice.

"This advisory work is a direct reflection of the heightened risk environment, and it signals an upwards trend for disputes in the coming months and years," says London-based arbitration partner Charlie Morgan.

What do tariffs mean for joint ventures?

Volatile trade policies are a direct threat to the risk profile of international investments. Increasing tariffs and levies threaten project margins and increase risks of supply chain instability. This is particularly the case for businesses in jurisdictions heavily exposed to the manufacturing industries supporting global supply chains for technology and industrial exports. In turn, those challenges can create significant friction between project stakeholders or lead to intractable funding or operational challenges leading to unavoidable disputes.

As a result, tensions within joint ventures may increase. According to Singapore-based arbitration partner Dan Waldek: "In the next 12 to 36 months we expect to see an increase in joint venture disputes where international investors are partnered with local partners."

What are the best legal tools to help review or terminate uneconomic arrangements?

A well-drafted contract remains the first line of defence for mitigating these risks. The most effective agreements anticipate volatility, with specific clauses designed not just to manage external risks but to govern the relationship between partners when those risks materialise. Key provisions may include cost-escalation clauses, which are particularly common in infrastructure JVs to provide a clear mechanism for handling funding calls when project economics shift. Similarly, force majeure clauses, material adverse effect clauses and suspension rights create an agreed-upon process for pausing particular activities when particular disruption occurs.

Beyond drafting, businesses are also exploring how technology can help manage these risks. According to Morgan, "For businesses with large investment portfolios, modelling legal risk at scale is a real challenge. Some legal teams are using AI-powered platforms to help them move from a reactive approach to a more proactive risk mitigation strategy, saving time and avoiding costly legal disputes."

Can investors wait for potential softening of trade policy?

This will vary between investors. In Asia, Japanese investors often adopt a longer-term horizon while private equity investors work within shorter timeframes.

"Investors might hold out thinking there are another three years of the current US Administration and maybe there are measures they can put in place to manage their risk exposure," says Waldek. "Maybe they can sell less of their product to America and sell more somewhere else, but that is economic navel-gazing."

What regions have been most affected?

No region has been immune from the current protectionist trends, with many jurisdictions now anticipating global trade changes for the foreseeable future. The unpredictability of these tariff regimes continues to threaten regional supply chain stability, accelerate the search for market diversification and prompt some to rethink their global sourcing strategies to manage escalating legal and operational risks.

Immediate attention centred on Southeast Asia, where key manufacturing hubs and "China Plus One" supply chains are now facing higher import levies and more stringent rules designed to influence the routing of goods. 

Meanwhile, North American industries face disruption from new duties impacting sectors like automotive manufacturing, and European exporters must contend with higher tariffs on their goods and internal market defensive measures that impact specific industries like steel. In turn, these global trends disrupt other emerging markets, which are finding it harder to attract global capital and face softening international demand. 

What else can businesses do to mitigate the tariff-related disputes risks?

"The key is to be proactive," stresses Morgan. "The time to assess your legal position is before a crisis hits. You should be in constant dialogue with your legal and commercial teams to understand your contractual risk exposure." 

"I'd be looking at cost-escalation clauses for supply contracts and material adverse effect type provisions in joint ventures and consortia," says Waldek. "A lot of that will be relevant to the construction and infrastructure sectors and parties now facing the indirect impact of tariffs on costs of goods should be looking at that. When it comes to fundamental investment decisions – do we build this plant, should we ice our planned expansion – then it's about exploring the contractual tools to mitigate your exposure down the line backed by a clear and stress-tested strategy."