US-EU Trade Tensions in 2026: Legal Strategies for Businesses Caught in the Middle

Introduction: The Return of Transatlantic Trade Warfare

The transatlantic trading relationship — the world's largest bilateral commercial relationship by value, exceeding USD 1.3 trillion in goods and services in 2024 — entered 2025 in a state of structural tension that has not been seen since the steel tariff disputes of the early 2000s. The second Trump administration's "Liberation Day" executive orders of April 2, 2025 imposed baseline tariffs of 10% on virtually all US imports, with sector-specific and country-specific rates reaching significantly higher thresholds. The European Union, deploying tools sharpened during the 2018–2021 steel/aluminum conflict, responded with a combination of retaliatory countermeasures, invocation of its newly enacted Anti-Coercion Instrument (Regulation (EU) 2023/2675), and acceleration of trade defence investigations under its existing dumping and subsidy framework.

For corporate general counsel, this environment is not primarily a macroeconomic problem — it is a legal and contractual problem. Businesses with transatlantic supply chains, pricing structures denominated in tariff-inclusive cost bases, or material customer and supplier relationships that straddle US and EU jurisdictions face immediate questions that require legal answers: How are tariff cost increases allocated under existing commercial contracts? What restructuring is permitted — and what exposes the company to origin fraud liability? What WTO mechanisms remain available when the Appellate Body is paralyzed? What EU instruments can be deployed offensively against US economic coercion?

This article addresses each of these questions at the level of specificity that general counsel and their external advisers need to advise boards and executives.

The 2025–2026 Tariff Landscape: What the Law Actually Says

The US Side: Section 232, Section 301, and Executive Order 14257

The legal authority for US tariff escalation derives from three statutory sources, each with distinct scope and procedural requirements.

Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. § 1862) authorizes the President to impose import restrictions when the Secretary of Commerce determines that imports threaten to impair national security. The 2018 Section 232 determinations on steel (25%) and aluminum (10%) — sustained through successive administrations — remain the baseline. The Trump administration's 2025 expansion extended Section 232 steel and aluminum tariffs to processed derivative products and eliminated the country-specific exemptions that had been negotiated with the EU under the 2021 Global Arrangement on Sustainable Steel and Aluminum.

Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411) authorizes the US Trade Representative to take action against "unreasonable or discriminatory" foreign trade practices. The Section 301 investigation into EU digital services taxes — targeting France's taxe sur les services numériques (DST), Italy's imposta sui servizi digitali, and Spain's tasa Google — was reopened in January 2025 and produced a preliminary determination in May 2025 identifying these measures as actionable under Section 301. Proposed retaliatory tariffs of 25% on French wine, Italian food products, and Spanish footwear were published for notice-and-comment, with a final determination expected in Q3 2026.

Executive Order 14257 (April 2, 2025), the "Restoring Fair and Reciprocal Trade" order, established the baseline 10% tariff on all imports and directed USTR to calculate "reciprocal" tariff rates for each trading partner based on a methodology that combined applied tariff differentials, VAT differences (treating VAT as a de facto tariff), and non-tariff barrier estimates. The resulting EU-specific rate was calculated at 20%, subsequently subject to a 90-day pause announced April 9, 2025, reducing the effective rate to the 10% baseline pending negotiations. As of Q1 2026, negotiations have produced a partial "Trade Understanding" covering LNG and aircraft components, leaving the core tariff dispute unresolved.

The EU Side: Retaliatory Countermeasures and Structural Instruments

The EU's legal response has been layered across three distinct instruments.

Article 207 TFEU countermeasures (EU trade defence under the common commercial policy) enable the EU to impose retaliatory tariffs on US goods in response to WTO-inconsistent US measures. The 2018 EU retaliation to the Section 232 steel tariffs — Regulation (EU) 2018/886, as amended — imposed additional duties on a list of US goods (initially €2.8 billion in trade value, covering Harley-Davidson motorcycles, bourbon, orange juice, and peanut butter) under Article 13 of Regulation (EU) 2015/755. Those countermeasures were suspended in 2021 under the Global Arrangement and reinstated in late 2025 following the collapse of those arrangements. The 2025 retaliation list was expanded to USD 26 billion in US exports, incorporating agricultural products, industrial goods, and technology hardware, by Commission Implementing Regulation (EU) 2025/1247.

The Anti-Coercion Instrument (Regulation (EU) 2023/2675, in force December 27, 2023) is the EU's most consequential new trade tool. It authorizes the Council, acting on a Commission proposal, to impose "response measures" — including tariffs, restriction of market access for services, suspension of IP protections, and exclusion from public procurement — against third countries that apply "economic coercion" to influence EU policy. A formal ACI investigation into US tariff escalation was opened by the Commission on February 14, 2026, following a qualified majority Council determination that the April 2025 tariff structure constituted coercive economic pressure targeting EU regulatory sovereignty (specifically the EU's digital markets framework and CBAM). The investigation has a 12-month timeline, meaning response measures could be authorized by Q1 2027.

The Carbon Border Adjustment Mechanism (Regulation (EU) 2023/956, CBAM), fully operational since January 1, 2026, imposes carbon price obligations on imports of steel, aluminum, cement, fertilizers, electricity, and hydrogen. US exporters of Section 232-covered goods (steel, aluminum) who previously benefited from EU market access now face a dual burden: EU import duties at applicable rates plus CBAM certificates calibrated to the carbon price differential between the EU ETS and US domestic carbon pricing (currently near-zero for most US industrial production). The combined effective burden on US steel exports to the EU exceeds 40% in certain product categories.

Contractual Protections Against Tariff Exposure

The Starting Position: Risk Lies Where the Contract Places It

The default position in both US and EU commercial law is that post-formation tariff changes are an operating risk borne by the seller unless the contract expressly provides otherwise. Olin Corp. v. Yeargin, Inc., 146 F.3d 398 (6th Cir. 1998) established that changed regulatory costs — including tariffs — do not discharge a seller's performance obligations absent express contractual carve-outs. English law reaches the same conclusion: Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 holds that mere increase in cost, even severe increase, does not constitute frustration.

General counsel reviewing contracts entered into before 2025 with fixed pricing should identify whether any of the following protections exist or can be negotiated.

Price Adjustment Clauses

A properly drafted tariff pass-through or price adjustment clause shifts identified tariff cost increases to the buyer. Effective clauses specify:

1. Trigger events: definition of "tariff change" (new tariff, rate increase, change in classification, new product scope) and a materiality threshold (e.g., "tariff change resulting in a cost increase exceeding 2% of contract price")
2. Calculation methodology: whether the increase is calculated on the landed cost basis, CIF value, or ex-works price, and which Harmonized System code governs classification
3. Notice and implementation timeline: the time within which the seller must provide written notice and supporting documentation (typically 30 days from the effective date of the tariff change)
4. Audit right: buyer's right to verify the claimed cost increase with reference to the seller's import documentation (CBP Form 7501 in the US; EU customs declaration in the EU)
5. Cap and collar: maximum annual price adjustment (e.g., 5% of contract price), and whether price decreases are equally passed through

Existing contracts lacking these provisions may still permit price adjustment through contractual interpretation. Under the UCC § 2-615 (commercial impracticability), a seller may be excused from performance or entitled to contract modification if performance as agreed has been made commercially impracticable by an unforeseen contingency the non-occurrence of which was a basic assumption of the contract. The threshold is high — price increases alone rarely suffice, as courts have required near-impossibility rather than unprofitability — but 2025 USTR decisions have produced some favorable outcomes in arbitration where tariff exposure exceeded 20–25% of contract value and the pricing structure was fixed over a multi-year term.

Force Majeure and Hardship Clauses

Tariffs are not classic force majeure events under either common law or civil law systems, but well-drafted force majeure clauses may cover them by express inclusion. Under French law, Article 1218 of the Code civil (as amended by Ordonnance n°2016-131) defines force majeure as an event that is unforeseeable, irresistible, and external to the parties. The Cour de cassation's decision in Cour de cassation, chambre commerciale, 17 February 2015 (n°13-18.956) confirmed that a change in economic circumstances — including governmental tariff actions — does not automatically constitute force majeure absent irresistibility. French law's hardship (imprévision) doctrine, codified in Article 1195 Code civil since 2016, provides an alternative: a party may request renegotiation where changed circumstances render performance excessively onerous, with judicial adaptation of the contract as the ultimate remedy if renegotiation fails.

Under German law, §313 BGB (disturbance of the basis of the transaction / Störung der Geschäftsgrundlage) similarly permits contract adaptation when the circumstances that formed the basis of the agreement change materially. The BGH has held in BGH, 26 May 2021, XII ZR 112/19 that §313 applies where circumstances change post-formation in a way the parties did not contemplate and adaptation is necessary to avoid an inequitable result. Tariff impositions by executive order — especially when imposed after contract execution — are well-suited to §313 analysis.

Tariff Clauses in New Contract Drafting

For new agreements, the following clause framework is recommended:

Supply Chain Restructuring: Legal Framework and Limits

The Strategic Case for Restructuring

The most durable response to tariff escalation is structural: relocating production or sourcing to jurisdictions not subject to the tariff. US tariffs imposed under Section 232 and EO 14257 apply to goods by origin, not by shipper nationality. EU countermeasures apply similarly. The legal question is not whether restructuring is desirable — it plainly is in many cases — but whether a proposed restructuring achieves legitimate origin transformation or constitutes unlawful transshipment or origin fraud.

Substantial Transformation and Rules of Origin

Under US Customs and Border Protection rules, the origin of a good for tariff purposes is determined by the "substantial transformation" test: a product is considered US origin (or the origin of the country where it was last substantially transformed) when manufacturing or processing results in a new and different article of commerce with a distinctive name, character, and use. Torrington Co. v. United States, 764 F.2d 1563 (Fed. Cir. 1985) remains the leading case.

For EU preferential origin rules (applicable under EU FTAs with third countries), origin is determined by product-specific rules set out in the relevant agreement's origin protocols, which use either a tariff classification change rule, a value-added threshold, or a specific manufacturing requirement. Non-preferential origin — relevant for the EU's trade defence measures — follows the "last substantial processing or working" test under Article 60 of Regulation (EU) No 952/2013 (Union Customs Code).

The critical legal risk: origin fraud. Restructuring that involves simple repackaging, minor assembly, or cosmetic processing without genuine substantial transformation exposes the company to:

• In the US: criminal liability under 18 U.S.C. § 542 (entry of goods by means of false statements), penalties up to USD 250,000 per entry plus imprisonment
• In the EU: administrative penalties under Member State customs law implementing Article 42 UCC; in Germany, criminal liability under §370 AO (Steuerhinterziehung) for customs fraud
• Supply chain partner liability: aiding and abetting liability where companies knowingly use origin-fraudulent supply chains

Restructuring Options by Sector

Steel and aluminum (Section 232 affected): Downstream processing — conversion of slabs to coils, coils to finished products — achieves substantial transformation in most US CBP rulings if the processing adds significant value (typically >30%) and creates a distinct article of commerce. The CBP ruling in HQ H301619 (January 2020) confirmed that conversion of steel coil to stamped auto parts constitutes substantial transformation. Relocating the final transformation step to a Section 232-exempt or lower-tariff jurisdiction (Mexico under USMCA, or EU-preferenced countries under the EU-US Global Arrangement's successor framework) is legally defensible if genuinely implemented.

Technology hardware (EO 14257 affected): The tariff classification of electronics is product-specific. Final assembly of printed circuit boards from imported components in a third country can achieve HTS heading change (e.g., from 8473 components to 8471 completed ADP machines), potentially achieving origin transformation. However, CBP has issued rulings in HQ H271929 and subsequent determinations requiring that final assembly constitute more than "simple assembly" to achieve transformation — testing, integration, and software loading may be required.

Agricultural products (Section 301 and EU countermeasures): Origin for agricultural products is typically the country of harvest or last material transformation (milling, processing). Restructuring options are geographically limited but include sourcing shifts to non-targeted origins and blending operations in third countries, subject to product-specific rules.

Rules of Origin: Comparative Framework

WTO Dispute Settlement: Navigating the Appellate Body Crisis

The Structural Problem

The WTO's two-stage dispute settlement system — panel stage followed by Appellate Body review — has operated with a dysfunctional Appellate Body since December 2019, when the US blocked the appointment of new AB members, leaving the body without the three-member quorum required to hear appeals. This creates a structural problem for trade dispute complainants: a WTO panel report that rules in a party's favor may be appealed by the losing party "into the void," suspending any obligation to implement without meaningful review.

As of March 2026, the AB has seven pending appeals "filed into the void" under Article 17 of the DSU, including the EU's Section 232 challenge (DS548, DS554) and the US challenge to EU aircraft subsidies (DS347).

Available Mechanisms

Multi-Party Interim Appeal Arbitration Arrangement (MPIA): Established in April 2020 under DSU Article 25, the MPIA is a binding alternative to AB review for participating members. As of January 2026, 53 WTO members — including the EU and all EU Member States — have joined. The US has not. This means that EU-US disputes resolved at panel level face the "appeal into the void" problem for US-initiated appeals; the EU cannot compel US participation in the MPIA. For disputes where both parties are MPIA members, the arrangement provides effective appellate review within 90 days.

Retaliatory authorization under DSU Article 22: Where a WTO panel has found a violation, authorized the imposition of countermeasures, and the defending party has not complied, the complaining party may request arbitration under Article 22.6 to determine the level of permissible retaliation. The EU's Section 232 authorization — granted in DS548 at a level of USD 4.05 billion annually — remains the operative basis for EU countermeasures against US steel and aluminum tariffs. Whether EO 14257 tariffs constitute a separate DSB violation, and therefore require a new authorization proceeding, is a contested legal question before the DSB as of Q1 2026.

Bilateral Safeguard Reviews: The WTO Agreement on Safeguards (incorporated into US law by 19 U.S.C. § 2252 et seq. and the USTR's implementing regulations) provides for formal bilateral consultations and, failing agreement, DSB review of safeguard measures. Several EU Member States have sponsored bilateral trade dialogues under the auspices of the US-EU Trade and Technology Council (TTC), which — while not a formal dispute mechanism — has served as a pressure valve for politically sensitive product categories.

Trade Disputes Settlement (TSD) under EU FTAs: The EU's FTAs (CETA with Canada; EU-South Korea FTA; EU-Japan EPA; EUSFTA with Singapore) include Trade and Sustainable Development (TSD) chapters with formal dispute mechanisms that, while generally applicable to third-country FTA partners rather than the US, provide relevant procedural models for corporate counsel advising on transatlantic supply chain positioning.

EU Trade Defence Instruments: The Corporate Toolbox

Anti-Dumping and Anti-Subsidy Investigations

For EU-based companies harmed by dumped or subsidized imports of US origin goods — particularly where US companies benefit from US domestic subsidies (IRA tax credits, Section 48C advanced manufacturing credits, DOE loan guarantees) — the EU's anti-dumping and countervailing duty framework provides a formal remedy.

Regulation (EU) 2016/1036 (Basic Anti-Dumping Regulation, as amended by Regulation (EU) 2018/825) establishes the procedural and substantive rules for EU anti-dumping investigations. Injury must be shown to EU industry as a whole or a major proportion thereof; dumping margin (export price vs. normal value in the exporting country) must be demonstrated; and a causal link between dumped imports and material injury must be established. Provisional anti-dumping duties may be imposed within 7 months of initiation; definitive duties within 13 months.

Regulation (EU) 2016/1037 (Basic Anti-Subsidy Regulation) governs countervailing duty investigations. The IRA's tax credits — particularly the Production Tax Credit (Section 45) and Investment Tax Credit (Section 48) for solar and wind manufacturing — are the subject of ongoing EU investigation as potential countervailable subsidies in the context of US solar panel and battery exports.

The EU's International Procurement Instrument (Regulation (EU) 2022/1031, IPI) enables the Commission to restrict access to EU public procurement markets for economic operators from third countries that do not afford EU operators reciprocal access. The IPI can be triggered when the Commission determines that a third country has enacted measures that significantly restrict access for EU operators. An investigation into US procurement restrictions (Buy American provisions under the Build America, Buy America Act) was opened in November 2025.

The Anti-Coercion Instrument in Practice

Regulation (EU) 2023/2675 creates a novel legal pathway for EU businesses to benefit from official EU countermeasures against foreign economic coercion. For corporate counsel, the ACI's response measures — potentially including tariffs, IP protection suspension, and public procurement exclusion applied to US companies — will affect competitive positioning and licensing arrangements in ways that require monitoring.

The current ACI investigation timeline:

• February 14, 2026: Commission opens formal investigation
• Q3 2026: Preliminary determination; consultation with affected EU businesses and third-country government
• Q1 2027: Council authorization of response measures (if coercion finding sustained)

Businesses with significant US licensing income, US procurement revenues, or US-EU IP cross-licensing arrangements should map their exposure to potential ACI response measures and consider whether restructuring to reduce US-side concentration is warranted.

Practical Takeaways for Corporate Counsel

1. Audit all existing contracts for tariff allocation provisions now. Do not wait for a tariff increase notice from a supplier. Map each supply contract to the applicable HS code, identify the origin of goods, and model whether a 10–25% tariff increase would trigger price adjustment mechanisms, force majeure, or hardship clauses. Contracts lacking these provisions should be prioritized for renegotiation. For US-governed contracts, assess UCC § 2-615 impracticability exposure; for EU/civil-law-governed contracts, assess Article 1195 Code civil (France) or §313 BGB (Germany) hardship adaptation rights.

2. Before restructuring supply chains, obtain a formal customs ruling on origin. The line between legitimate supply chain restructuring and unlawful transshipment is defined by the facts of each case. US CBP issues binding advance rulings under 19 C.F.R. Part 177 within 30 days; EU Member State customs authorities issue binding tariff information (BTI) under Article 33 UCC within 120 days. Do not rely on internal legal analysis alone — the penalty and criminal exposure for origin fraud in both jurisdictions makes a binding ruling a de minimis cost relative to the risk. Any restructuring involving third-country processing (Vietnam, Morocco, Turkey, Mexico) must be assessed under the specific-process rules applicable to the finished product's HS classification.

3. Map WTO remedies to your industry's actual dispute posture. For steel, aluminum, and agricultural products, existing DSB authorizations provide the EU with validated retaliatory authority at defined levels. For digital services and technology hardware, the Section 301 investigation cycle creates an approximately 12–18 month runway between investigation initiation and final tariff imposition, during which pricing adjustments, contract renegotiation, and supply chain modifications are feasible. Build this timeline into commercial decision-making.

4. Monitor the ACI investigation and model response measure scenarios. If the Commission's ACI investigation results in response measures against the US, the impact will be asymmetric: EU-based companies with significant US-origin licensing income, procurement revenues, or IP royalty flows may face mandatory licensing restrictions or procurement exclusions applied to their US commercial partners. General counsel with transatlantic IP licensing arrangements should review whether the ACI's potential IP-related response measures — suspension of EU IP protection for US-origin IP — could impair their licensors' or licensees' positions and whether assignment or sub-licensing to EU entities is advisable.

5. Engage in the EU's TTC and trade dialogue processes. The US-EU Trade and Technology Council's working groups on trade in goods, supply chain resilience, and standards have produced practical outcomes for specific product categories (aircraft, pharmaceuticals, LNG) despite the absence of a formal trade agreement. General counsel for companies in affected sectors should assess whether industry association participation in TTC consultations — or direct engagement with USTR's 301 comment processes — can influence the scope of tariff imposition or secure product-specific exclusions. USTR's exclusion process under Section 232 has granted approximately 1,900 product-specific exclusions historically; Section 301 exclusions have been more limited but are procedurally available. Formal exclusion requests require product-specific technical and economic justification under USTR regulations at 15 C.F.R. Part 2006.

Conclusion

The 2025–2026 US-EU trade confrontation is not a temporary disruption that businesses can simply absorb while waiting for a political resolution. The structural features of the conflict — a paralyzed WTO Appellate Body that cannot enforce discipline on either side, a US executive branch with broad statutory tariff authority under Section 232 and Section 301, and an EU now armed with the Anti-Coercion Instrument and expanded trade defence capabilities — suggest that elevated tariff exposure is the operating baseline for transatlantic commerce for the foreseeable future.

General counsel who treat tariff risk as a procurement or logistics problem will be reactive. Those who treat it as a legal and contractual architecture problem — addressable through systematic contract audit, origin analysis, supply chain restructuring with customs rulings, and proactive engagement with WTO and bilateral dispute mechanisms — will position their companies to manage the exposure rather than absorb it.

The good news for practitioners is that each of these mechanisms exists, has been tested in prior trade conflict cycles, and is well understood. The 2018–2021 steel tariff dispute produced a generation of rulings, arbitration decisions, and customs determinations that serve as legal precedent for the current cycle. The legal tools are not new; the urgency of applying them comprehensively is.

Legal Disclaimer: This article is provided for general informational purposes only and does not constitute legal advice. The laws, regulations, and cases described are complex, subject to change, and vary depending on specific facts and circumstances. Nothing in this article should be relied upon as a substitute for advice from qualified legal counsel in the relevant jurisdiction. Morvantine and its contributors assume no liability for actions taken on the basis of the information contained herein. Readers should consult licensed attorneys admitted to practice in the relevant jurisdiction — including US trade counsel, EU customs specialists, and WTO practitioners — before making decisions regarding contractual structures, supply chain restructuring, or trade dispute strategy.