On Sept. 24 the U.S. announced it would tax $200 billion worth of Chinese goods at 10 percent, a rate that may rise to 25 percent in 2019.
The next day China levied tariffs on about $60 billion worth of imports from the U.S. and vowed to “outlast” Washington D.C. in a trade war that has escalated since spring. China’s latest round of tariffs, now levied on $113 billion of U.S. exports, are assessed at two levels, 5 percent and 10 percent. The cumulative tax on processed tea crossing the Chinese border will now be 25 percent.
The value of goods imported from China is much greater than the value of U.S. goods that China imports. As a result, China included many agricultural products with relatively small trade value. Tea and coffee are among the items named. Eater has compiled a complete list of these and other foods experiencing increased tariffs.
In 2017 China imported $2,650,000 worth of tea from the U.S., mainly black, according to freight forwarding company Flexport which publishes import and export data sourced from the U.S. Census statistical records. Since China is the world’s largest tea producer, the country imports very little tea. World’s Top Exports estimates China spent $149 million importing tea in 2017, about 2 percent of the global total. China’s important local trading partners are neighboring Vietnam, Korea, and Japan. Its most important export markets are Morocco, Uzbekistan, Senegal, the U.S. and Algeria.
In 2005 China imported less than $225,000 in U.S. tea. China has since become one of the top dozen countries that buy tea from the U.S. Canada is by far the largest importer, purchasing approximately $75 million annually, a number that has increased by almost $50 million per year since 2005. Japan is the second largest importer of U.S. tea, by value, at $6.9 million in 2017. Germany bought $5.3 million that year and Mexico, Korea, and Great Britain each purchase about $5 million annually. Great Britain was for many years the primary export market for U.S. tea, behind Canada, but was surpassed by Japan in 2013. Annual sales continue to decline, mirroring the U.K. public’s growing preference for coffee and reflecting a lack of interest in traditional black tea. In the U.K. herbals are more popular with young tea drinkers.
Impact on U.S. Tea Exporters
Since the U.S. produces only small amounts of tea, exports in quantity are limited to a few farms in Hawaii and blends from California. Tea exports from Hawaii were $24,248 in 2017. The U.S. is home to several large-scale tea blenders located in the Northeast, Virginia, and in California. California exported $25 million worth of tea in 2017 and Washington state exported $21 million. Virginia tea exports ranked third at $12.5 million in 2017.
Levying a 35 percent tariff means customers in China will pay an additional $927,000 in taxes, placing U.S. tea at a competitive disadvantage compared to identical teas imported from Canada or U.K.
China has been aggressively reducing rates by about a third in the past few years, inviting closer trade with Europe. European countries account for less than 10 percent of China’s tea export volume.
In July 2018 China cut taxes on tea imported from India, South Korea, Bangladesh, Laos, and Sri Lanka by half from 15 percent to 7.5 percent. This year China has reduced or eliminated tariffs on 8,549 goods, with many tariffs cut to zero. Many countries with trade deficits with China have pursued expanded market access and China would like to diversify import channels in response to the U.S. trade conflict.
The decision to tax U.S. tea imports coincides with efforts by commissioners of the European Union to increase trade of farm products with China. Phil Hogan, EU commissioner for agriculture and rural development, completed a six-day trip to Shanghai and Shenzhen this spring attesting to the “strong desire of many European companies to build stronger business and trade relationships with their Chinese counterparts for their mutual benefit,” he said.
Formal trade agreements followed. As a member of the World Trade Organization China enjoys Most Favored Nation (MFN) status, which can mean tariffs as low as zero percent. The EU is one of the most open markets in the world with more than 80 percent of imports taxed at 10 percent or less and 35 percent not taxed at all. Developing countries fare even better, all unprocessed coffee and tea, including instant and tea bags, enter the EU entirely duty and quota free, according to the European Commission on Agriculture and Rural Development.
China is the second-largest importer of EU agricultural products, valued at $21 billion in 2017.
China is the largest tea exporter in the world, by value, sending $1.6 billion in tea to Asian destinations, the Middle East, Europe, and the U.S. The U.S. is a major recipient, landing 19.4 million kilos in 2017. This represents about 6 percent of total exports but less than 1 percent of China’s total production, according to the Tea Association of the USA, citing International Tea Committee statistics.
U.S. tea retailers think it “highly unlikely” that the U.S. will tax Chinese tea. Doing so would not generate significant revenue and the 10 percent tax would not discourage imports.
Aaron Vick, senior tea buyer at The G.S. Haly Co., a tea importer located in Redwood City, Calif., told World Tea News, “Since the U.S. has no tea growing/producing industry to compete commercially with China, any tariff imposed on Chinese tea would not be protective (as the administration purports these actions to be) but rather, a transparently punitive attack on a culturally iconic product that embodies Chinese national pride.”
U.S. President Donald Trump has said that unlike tariffs imposed on European, Canadian, and Mexican trade partners, the strategy with China is different.
The Wall Street Journal explains that, “Using tariffs to make it more expensive for companies to export from China, Trump trade warriors figure, will encourage foreign firms to take their know-how out of the country. This isn’t a short-term strategy.”
The intent is to force China to drop pressure on U.S. tech firms to reveal their secrets; and reduce the role of state-owned firms in China’s economy by allowing U.S. firms to get majority stakes in businesses.
“These are the types of changes that China finds most difficult to accept,” according to the Journal.
Zhang Xiangchen, China’s representative to the World Trade Organization stresses that China is a socialist market economy, “for those who speculated that China would change and move into a different path… that was their wishful thinking,” he says.
Latest tariff list: U.S. Tariff List