Authored By: Prisheela Thavanthran
National University of Malaysia (UKM)
- INTRODUCTION
The President of the United States, Donald J. Trump, imposed new tariffs on imports into the United States on 2 April 2025, with a 24% reciprocal tariff on Malaysian goods taking effect on 9 April 2025. Although not all Malaysian exports are affected, key sectors including copper, semiconductors, pharmaceuticals, lumber, steel, aluminium, auto parts, critical minerals and certain energy products fall within the tariff scope. The U.S. remains one of Malaysia’s major trading partners, particularly in electrical and electronic products, meaning that sudden tariff hikes can disrupt supply chains, raise operational costs and threaten the performance of cross-border commercial contracts.
This development prompts an important legal question: can Malaysian parties invoke these tariffs as a force majeure event to excuse contractual non performance? As Malaysian law does not define force majeure statutorily, the answer depends on contractual wording, common-law principles, and the doctrine of frustration under section 57 of the Contracts Act 1950. This article examines the relevant legislative framework, judicial approach and practical challenges in relying on Trump’s reciprocal tariffs as force majeure, before offering a critical assessment and recommendations for Malaysian businesses navigating this evolving commercial landscape.
- LEGISLATIVE FRAMEWORK AND JUDICIAL INTERPRETATION
2.1 The U.S. Reciprocal Tariffs and its Effects
The U.S. reciprocal tariffs was imposed on 2nd April 2025 through Executive Order 14257 which applied a global 10% tariff and a higher 24% reciprocal tariff on selected imports from countries including Malaysia.1 The Order relies on broad presidential powers under statutes such as International Emergency Economic Powers Act, Section 232 of the Trade Expansion Act 1962 and Section 301 of the Trade Act 1974, allowing the President to restrict imports for national-security or economic reasons. This tariff can significantly raise the cost of Malaysian exports, reducing their price for competitiveness in the American market.2 Furthermore, it would also disrupt contract pricing for many manufacturers integrated into global supply chain, squeeze profit margins and trigger delays or renegotiations with the U.S buyers.
2.2 Statutory Recognition of Force Majeure under Malaysian Law
Malaysia does not provide a comprehensive statutory definition of force majeure, and its application is therefore largely dependent on the wording expressly included in commercial contracts. In practice, force majeure operates as a contractual risk-allocation mechanism, and its scope, triggers, and consequences will be interpreted according to the parties’ drafting. Nevertheless, the Contracts Act 1950 (CA 1950) forms the general legal backdrop within which such clauses operate.
Under Malaysian law, a party invoking a force majeure clause bears the burden of proving that the case falls squarely within the terms of the clause. This requires demonstrating that: (i) one of the specified events has occurred, (ii) the event has prevented, hindered, or delayed contractual performance, and (iii) the non-performance arose from circumstances beyond the party’s control, with no reasonable steps available to avoid or mitigate the consequences.3
Where the contract is silent on force majeure, parties may instead rely on Section 57(2) CA 1950, which embodies the doctrine of frustration. A contract becomes void when an unforeseen event renders performance impossible, unlawful, or fundamentally different from what the parties originally contemplated. The Federal Court in Pacific Forest Industries Sdn Bhd v Lin Wen-Chih clarified that mere difficulty or inconvenience does not amount to frustration. 4 The essential elements were further articulated in Guan Aik Moh (KL) Sdn Bhd v Selangor Properties Bhd [2007] 3 CLJ 695, which require that:
(i) the contract contains no provision addressing the supervening event;
(ii) the event is not caused by the party seeking to rely on it; and (iii) the event turns the contractual obligation into something radically different from that initially undertaken
Together, these principles demonstrate that both force majeure and frustration operate within a narrow legal threshold, requiring clear proof and strict interpretation before non-performance can be excused.
- CRITICAL ANALYSIS
Whether the U.S. reciprocal tariffs can be invoked as a force majeure event under Malaysian law ultimately depends on the contractual terms, the foreseeability of the event, and the extent to which mitigation was possible.
Force majeure in Malaysia is strictly a contractual mechanism. Courts adopt a narrow interpretative approach, requiring the event relied upon to fall clearly within the express wording of the clause. This approach, as illustrated in Intan Payong Sdn Bhd v Goh Saw Chan Sdn Bhd, reflects the high evidential threshold for proving the occurrence of the triggering event and its causal link to non performance.
Even where a force majeure clause is drafted broadly, a further hurdle lies in establishing that the tariff “prevented, hindered, or delayed” contractual performance. The U.S. reciprocal tariff increases the cost of performance but does not render performance impossible. Malaysian jurisprudence, particularly the Federal Court decisions in Pacific Forest Industries and Guan Aik Moh, makes it clear that increased expenses, reduced profitability, or commercial hardship do not excuse performance. While the tariff may affect margins or pricing structures, it does not disable performance unless the measure renders the relevant importation unlawful, which may satisfy the threshold in limited circumstances.
Foreseeability also weakens attempts to rely on force majeure. International trade is inherently exposed to regulatory shifts, economic fluctuations, and trade policy changes. Given that Donald Trump has indicated this imposition of this tariff, Malaysian exporters would find it difficult to argue that the reciprocal tariff was unforeseeable.5 Courts are likely to view tariff volatility as a risk assumed by the parties or one that should reasonably have been addressed through contractual drafting, price-adjustment clauses, or risk allocation mechanisms.
Mitigation requirements present an additional challenge. A party invoking force majeure must demonstrate that no reasonable steps were available to reduce or avoid the impact of the tariff.6 This may include renegotiating prices, adjusting logistics, revising contractual quantities, or seeking alternative markets. Since tariffs affect cost rather than the ability to perform, courts will often find mitigation feasible, thereby undermining a force majeure claim.
Lastly, reliance on frustration under Section 57(2) CA 1950 faces even stricter scrutiny. Tariff increases do not ordinarily transform contractual obligations into something “radically different” from what was originally undertaken. Performance remains legally and physically possible, albeit less profitable, and Malaysian courts consistently hold that economic hardship does not amount to frustration.
- RECOMMENDATIONS AND CONCLUSION
In light of the legal principles governing force majeure and frustration in Malaysia, it is unlikely that the 2025 U.S. reciprocal tariffs while commercially disruptive would excuse contractual performance unless expressly captured within the contract’s wording. Malaysian courts maintain a narrow approach to force majeure, distinguishing sharply between genuine impossibility and mere economic hardship. Tariff increases, which primarily affect cost rather than the ability to perform, seldom meet the required threshold. As such, businesses cannot rely on the doctrine of frustration under Section 57(2) CA 1950 either, as the obligations remain fundamentally the same despite becoming more burdensome.
Given these limitations, Malaysian businesses engaged in cross-border transactions should proactively strengthen their contractual risk-management mechanisms. First, parties should draft force majeure clauses expressly, ensuring they include broad references to “governmental action,” “tariff changes,” and “trade restrictions” to capture similar events in the future.7 Second, businesses must be prepared to mitigate the impact of such tariffs by reassessing supply chains, adjusting pricing strategies, or exploring alternative export markets.
In addition, incorporating Material Adverse Change (MAC) clauses can offer flexibility where significant economic or regulatory shifts impact the commercial balance of the contract. 8 Similarly, renegotiation clauses provide structured avenues for parties to revisit contractual terms when external events create severe economic imbalance. However, this clause has three considerations that the parties must take into account: the range of events that call for renegotiation, particularly whether the events must be unanticipated and outside the parties’ control; whether the applicable laws recognise an arbitrator’s authority to modify the terms of a contract if the parties are unable to come to an agreement through renegotiation; and the standards that the arbitral tribunal should apply when modifying the contract.9 Finally, a well-drafted price adjustment clause allows contractual pricing to reflect unforeseen cost escalations, reducing disputes and preserving commercial relationships.
By integrating these mechanisms, Malaysian businesses can better navigate unpredictable international trade environments while safeguarding contractual certainty and operational resilience.
REFERENCE(S):
Statutes
Malaysia
Contracts Act 1950
The United States of America
International Emergency Economic Powers Act
Trade Expansion Act 1962
Trade Act 1974
Cases
Guan Aik Moh (KL) Sdn Bhd v Selangor Properties Bhd [2007] 3 CLJ 695 (CA) Intan Payong Sdn. Bhd. v Goh Saw Chan Sdn. Bhd. [2005] 1 MLJ 311 (HC) Pacific Forest Industries Sdn Bhd v Lin Wen-Chih [2009] 6 CLJ 430 (FC)
Sunway Quarry Industries Sdn Bhd v Pearl Island Vista Sdn Bhd & Anor [2019] MLJU 400 (HC)
Online Journal Article
Damian McNair, ‘Material adverse change clauses’, (2016) PwC <https://www.pwc.com.au/legal/assets/investing-in-infrastructure/iif-38-material adverse-change-clauses-feb16-3.pdf> accessed 30 November 2025.
John Y. Gotanda, Renegotiation and Adaptation Clauses in Investment Contracts, Revisited’ (2003) 36(4) VJTL <https://scholarship.law.vanderbilt.edu/cgi/viewcontent.cgi?article=1635&context=vjt l> accessed 30 November 2025
Singh & C. Cheng, ‘Trump, trade and tariffs: impact on Malaysia’ (2025) ISIS <https://www.isis.org.my/2025/06/06/trump-trade-and-tariffs-impact-on-malaysia/> accessed 29 November 2025
President Donald J. Trump, ‘Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits’ (EO 14257, 2 April 2025) https://www.whitehouse.gov/presidential
actions/2025/04/regulating-imports-with-a-reciprocal-tariff-to-rectify-trade-practices that-contribute-to-large-and-persistent-annual-united-states-goods-trade-deficits/> accessed 29 November 2025
Website
Jared Burden, ‘Tariffs as force majeure events: Can Trump’s trade policies excuse contract performance under Virginia Law?’ (Nip Impressions, 14 May 2025) <https://www.nipimpressions.com/tariffs-as-force-majeure-events-can-trumps-trade policies-excuse-contract-performance-under-virginia-law–cms-18669> accessed 30 November 2025
Michael A. Sneyd, ‘Tariffs and Contract Performance: Can Tariffs be a Force Majeure Event?’ (Kerr Russel, 8 April 2025) https://www.kerr-russell.com/tariffs-and-contract performance-can-tariffs-be-a-force-majeure-event/ accessed 30 November 2025.
1 President Donald J. Trump, ‘Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits’ (EO 14257, 2 April 2025) https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal tariff-to-rectify-trade-practices-that-contribute-to-large-and-persistent-annual-united-states-goods trade-deficits/> accessed 29 November 2025.
2J. Singh & C. Cheng, ‘Trump, trade and tariffs: impact on Malaysia’ (2025) ISIS <https://www.isis.org.my/2025/06/06/trump-trade-and-tariffs-impact-on-malaysia/> accessed 29 November 2025.
3Intan Payong Sdn. Bhd. v Goh Saw Chan Sdn. Bhd. [2005] 1 MLJ 311 (HC).
4[2009] 6 CLJ 430 (FC).
5 Michael A. Sneyd, ‘Tariffs and Contract Performance: Can Tariffs be a Force Majeure Event?’ (Kerr Russel, 8 April 2025) https://www.kerr-russell.com/tariffs-and-contract-performance-can-tariffs-be-a force-majeure-event/ accessed 30 November 2025.
6 Sunway Quarry Industries Sdn Bhd v Pearl Island Vista Sdn Bhd & Anor [2019] MLJU 400 (HC)
7Jared Burden, ‘Tariffs as force majeure events: Can Trump’s trade policies excuse contract performance under Virginia Law?’ (Nip Impressions, 14 May 2025) <https://www.nipimpressions.com/tariffs-as force-majeure-events-can-trumps-trade-policies-excuse-contract-performance-under-virginia-law– cms-18669> accessed 30 November 2025.
8 Damian McNair, ‘Material adverse change clauses’, (2016) PwC <https://www.pwc.com.au/legal/assets/investing-in-infrastructure/iif-38-material-adverse-change clauses-feb16-3.pdf> accessed 30 November 2025.
9John Y. Gotanda, Renegotiation and Adaptation Clauses in Investment Contracts, Revisited’ (2003) 36(4) VJTL <https://scholarship.law.vanderbilt.edu/cgi/viewcontent.cgi?article=1635&context=vjtl> accessed 30 November 2025.
