Global Daily Tax News, US Appeals Court Deems Tariffs On China Lawful, (Oct 2, 2025)

The US Court of Appeals for the Federal Circuit has issued a ruling in relation to challenges brought by thousands of companies against the imposition of tariffs on Chinese goods.

The case concerns tariffs introduced following on from an investigation conducted by the Office of the United States Trade Representative (USTR), which found that China was engaged in unreasonable or discriminatory conduct that burdens or restricts US commerce.

The USTR took discretionary action under Section 301 of the Trade Act of 1974 by imposing 25 percent duties on USD50bn of imports from China. This USD50bn trade action on "List 1" and "List 2" – a reference to the list of Chinese products included in the affected Harmonized Tariff Schedules. These List 1 and List 2 tariffs were not challenged in the latest case.

After China retaliated against these tariffs, USTR invoked Section 307 to modify its discretionary action and imposed 10 percent duties, later increased to 25 percent, on an additional USD200bn of Chinese imports that fall under List 3. USTR then imposed 10 percent duties, later decreased to 7.5 percent, on approximately USD120bn in Chinese imports that fall under List 4A.

A case was brought by four businesses that import Chinese products subject to the List 3 and List 4A tariffs. These companies filed the first of over 3,600 cases before the Court of International Trade alleging that the List 3 and 4A tariffs were issued without statutory authority and in violation of the Administrative Procedure Act's requirements for notice and comment rulemaking.

As summarized by the Court of Appeals, "The main issue before [the] court is one of statutory interpretation – namely, whether Section 307 authorized USTR to modify its original Section 301 trade action by imposing escalatory tariffs on List 3 and List 4A."

"The trial court agreed with the Government that the modifications were consistent with USTR's authority under Section 307(a)(1)(B), which allows USTR to modify an action where the burden or restriction imposed by the investigated conduct 'has increased or decreased.'"

"Following a remand order instructing USTR to further explain how it considered significant public comments aired in response to the proposed modifications, USTR produced a remand redetermination articulating in greater detail its contemporaneous reasoning for the modified actions. On review, the trial court sustained the List 3 and List 4A tariff actions."

In its judgment issued on September 25, 2025, the US Court of Appeals declined to address the scope of USTR's authority under Section 307(a)(1)(B) and instead concluded that Section 307(a)(1)(C) independently authorized the Lists 3 and 4A tariff actions. The Court further concluded that USTR's remand redetermination complied with the trial court's lawful remand order and supplied the necessary clarification to meet the APA's requirements regarding notice-and-comment rulemaking. Accordingly, the Court affirmed the trial court's final judgment and sustained USTR's challenged modifications.

Regarding the alleged APA violations, the trial court agreed with the appellants that USTR failed to adequately respond to comments as required by the APA's notice-and-comment rulemaking procedures.

In its ruling, the Appeals Court said on the matter: "Although USTR's notices of proposed rulemaking indicated a 'willingness to consider factors other than the President's direction,' the contested final actions did not respond to significant issues raised in the comments – including 'concerns regarding the legality and efficacy of the tariffs, the potential for damage to the US economy, and whether alternative measures would be more effective' – or explain the relationship between issues raised in the comments and the President's direction.

The trial court ordered a limited remand for USTR to reconsider or further explain its rationale for the List 3 and 4A tariffs, warning that USTR "may not identify reasons that were not previously given."

In a 90-page remand determination, USTR responded in more detail to the categories of comments highlighted by the trial court and further contextualized how it weighed the President's direction when taking modified actions.

In March 2023, the trial court sustained USTR's remand determination and entered a final judgment sustaining the List 3 and List 4A tariffs. The trial court said it was satisfied by USTR's explanation that it views the Trade Act of 1974 as affording it little discretion to diverge from the President's direction, and by USTR's account of how it balanced commenters' concerns with the Presidential direction it had received.

The Appeals Court said, "We further conclude that USTR's remand redetermination complied with the trial court's remand order and cured its original violations of the APA's procedural requirements. Accordingly, we affirm."