Federal Circuit Upholds Lists 3 and 4A Section 301 Tariffs on China

Hughes, writing for the court, then found that this authority doesn't violate the Constitution's non-delegation doctrine, nor the major questions doctrine, which warns against using broad statutes to claim newfound and unheralded authority over major politically or economically significant issues. The court distinguished the case from its recent decision striking down the tariffs issued under the International Emergency Economic Powers Act, which was partially decided using the major questions doctrine.

Lastly, the Federal Circuit said the lists 3 and 4A tariff actions were decisions made by the U.S. trade representative and not discretionary presidential actions, subjecting them to review under the Administrative Procedure Act. Hughes said USTR complied with the APA by adequately responding to comments on the duties on remand at the Court of International Trade.

Statutory Interpretation

The lists 3 and 4A tariffs were imposed by USTR under both Section 307(a)(1)(B) and Section 307(a)(1)(C) and were issued in response to China's retaliation to the initial $50 billion imposed in Section 301 tariffs. The U.S. response expanded the Section 301 tariffs to cover a total of $350 billion worth of goods, prompting thousands of companies to file suit against the action.

The trade court ultimately upheld the tariff expansion, though it did so under Section 307(a)(1)(B), which lets the USTR "modify" a Section 301 action where the burden or restriction imposed by the investigated conduct, which in this case centered on Chinese intellectual property theft, "has increased or decreased" (see 2204010061). However, the Federal Circuit said that since the lists 3 and 4A tariffs are valid under Section 307(a)(1)(C), it didn't need to decide whether the duties were also valid under Section 307(a)(1)(B).

Central to whether Section 307(a)(1)(C) covers the tariff expansion is the word "modify." While the challengers said the term only means a "moderate" or "minor" change, the government said the term is "broad enough to encompass 'important' change." Hughes said the definition of the term in the Trade Act of 1974, which says it "includes the elimination of any duty or import restriction," is "an open-ended definition" that doesn't exclude anything. "Section 307(a)(1) similarly places no limit on the scope of the term 'modify,'" the judge noted.

Hughes held that "modify" is "indifferent to degrees of change and contains no inherent limitations," since the only example of a modification provided by the statute is the "elimination" of a duty, which "encompasses major changes because the relative impact of a duty could be large." The judge added that "modify" is "indifferent to the direction of change and encompasses both escalations and de-escalations in trade actions."

The challengers argued that "modify" has an "implied upward limit" and can't include a change as large as the ones found in lists 3 and 4A. The companies relied on two key decisions: Solar Energy Industries Association v. U.S., in which CAFC said the word "modify" in the context of Section 201 safeguards includes trade-restricting modifications (see 2311130031), and Biden v. Nebraska, in which the Supreme Court struck down President Joe Biden's student loan forgiveness plan on the notion that the authority to "modify" the loans on which the President relied only allowed for modest changes.

Hughes distinguished both cases. In SEIA, the Federal Circuit noted that the "modify" power was subject to a "phase-down requirement," barring the modified duties from being "any higher than the tariff that was imposed in the preceding year." There was an "explicit upward limit" to this power that isn't present on the power to "modify" under Section 307, the court said.

The court said Biden v. Nebraska was concerned with the power to modify provisions "promulgated by Congress, which implicates separation of powers concerns not at issue here." Section 307 gave USTR the "power to modify its own agency actions, not the statute authorizing those actions." Discretionary actions aren't subject to a "proportionality requirement or any other express limit on the scale of their impact," the court said.

These discretionary actions are only limited by whether they are "appropriate," Hughes noted. While the challengers say this term means the USTR can only "reduce or terminate" a Section 301 duty, the court sided with the government's "broader view" of the term, which says the "modification authority extends to situations in which prior, predictive action proved insufficient to its stated purpose, necessitating increased action that is more appropriate." Hughes held that the companies' claims are "untethered from the text of the statute itself."

Responding to the claim that allowing these tariffs to stand under the word "modify" would allow the "Administration to prosecute a limitless trade war," the court disagreed and said any modified action "is still tied to the original Section 301 action" and "must be tailored to achieve Section 301’s statutory goal of eliminating the investigated conduct." Hughes noted that "USTR appears to have responded to this limit on its modification authority throughout," pausing tariffs where China cooperated and punished China when it failed to investigate the identified IP theft.

The companies additionally argued that reading Section 307(a)(1)(C), which only applies to discretionary actions, in this way would make Section 307(a)(1)(B), which applies to both mandatory and discretionary actions, "superfluous." Hughes said that even if the companies are right that USTR will always prefer (a)(1)(C) or (B) to modify a discretionary action, (B) "maintains independent significance as the only clause which allows USTR to increase a mandatory action in view of increased burdens on commerce," the court said.

Constitutional Issues

After establishing the tariffs were a valid exercise of the statute, the court then reviewed whether the statute violated the Constitution. Assessing whether Section 307(a)(1)(C) violates the non-delegation doctrine, Hughes applied the Supreme Court's unexacting "intelligible principle" standard, under which statutes are sustained if they provide the Executive with an "intelligible principle" to follow.

The court said the statute "plainly provides an intelligible principle for USTR’s authority to modify a discretionary action." Section 307(a)(1)(C) "authorizes only those actions that would have been permissible in the first instance under Section 301(b) -- specifically, those appropriate to obtain the elimination of the foreign practices found to be unfair after a full investigation," the decision said. This standard "provides the specificity that is required for Congress to delegate some of its authority to USTR."

Hughes rejected the companies' major questions doctrine arguments as well, distinguishing the Supreme Court's marquee cases on this issue. For instance, in West Virginia v. EPA, the court said the EPA "transformed the scope of Section 111 of the Clean Air Act 'to adopt a regulatory program that Congress had conspicuously and repeatedly declined to enact itself,'" modifying the "very nature" of its "regulatory authority." And in the IEEPA tariffs case, the duties there were "unheralded" and "transformative" and the U.S. had never claimed power of that size under IEEPA, Hughes noted.

Here, however, the "Lists 3 and 4A tariffs may, at best, be a new use of USTR’s regulatory authority, but they do not involve a transformation of USTR’s regulatory authority," the court said. "USTR has modified its own unchallenged and statutorily permissible original action in this case, not the underlying Trade Act of 1974."

APA Review

The Federal Circuit also reviewed the tariffs for compliance with the APA after finding at the outset that the tariff modifications are agency actions taken by USTR and not presidential decisions. CIT previously remanded the lists 3 and 4A tariffs after finding that USTR didn't meaningfully respond to comments received on the tariff modifications.

On appeal, the U.S. said the requirement to respond to comments didn't apply to USTR, since the tariffs fell within the APA's "foreign-affairs exception," which says APA compliance isn't needed where a "military or foreign affairs function" of the U.S. is at play. CAFC upheld the trade court's ruling that this exemption doesn't apply, since the government only raised the exemption before the court post hoc and the exemption is “inconsistent with the manner in which the USTR conducted the modification processes.”

The companies argued that after the trade court found USTR to not have meaningfully responded to comments, the lower court was required to vacate the tariffs rather than give the agency a chance to offer illegal post hoc rationalizations of its decisions. Hughes rejected this claim, finding the companies to have conflated "failure to address significant comments with failure to consider those significant comments at all." If the agency "indicated the factors relevant to its action in the first instance, it is allowed to elaborate on remand," the court said.

(HMTX Industries v. United States, Fed. Cir. # 23-1891, dated 09/25/25, Judges: Alan Lourie, Todd Hughes and Rodney Gilstrap; Attorneys: Pratik Shah of Akin for plaintiffs-appellants led by HMTX Industries; Emma Bond for defendant U.S. government)