In this installment World Tea News invited tea industry leaders who closely follow trade issues to comment on the reduction of tariffs on Chinese imports from 15% to 7.5% effective Feb. 14, 2020.
We at Firsd Tea applaud the signing of the Phase 1
Agreement as a step toward easing trade tensions between the U.S. and China. We
also share the industry’s optimism as to what this agreement means for tea
businesses here in North America.
That said, we are still awaiting the solid facts and details regarding the implementation of the agreement. The actual wording of the deal signed on 15 January is quite broad and superficial. Shippers, brokers and other members of the industry are STILL waiting to see the official document that outlines WHAT items (HS codes) will be affected by the Phase 1 Agreement, and WHEN the changes will take effect. There is a lot of optimism in the air―we assume it is NOT unfounded.
For the near-term, if not beyond, the tea industry may need to shift its procurement habits to account for greater cost fluctuation on imports from all countries of origin. When any and all international trade agreements are up for negotiation, there is a greater advantage to those with more accurate projections who can buy at the right time and place. It behooves tea companies to have a plan and shop wisely.
Perhaps this shift can have a positive effect. We may be seeing a New Dawn of tea as a more valuable product―one that consumers choose to pay a premium for because of its quality and unique character, its sustainability, and its ability to improve their quality of life.
— Jason Walker
Marketing Director, FirsdTea North America
While the “good news” is that the tariffs have been reduced from 15% to 7.5%, our position has not changed since the imposition of these “taxes” by the Trump Administration.
When we testified at the hearing held by the US Trade Representative (USTR), we stated:
“Due to the disproportionate economic harm these tariffs would have on U.S. tea industry and U.S. consumers, our recommendation is to remove black and green teas (HTS subheadings: 0902.10.10, 0902.10.90, 0902.20.10, 0902.20.90, 0902.30.00, 0902.40.00) and instant tea / extracts (Instant/Extracts of Tea (2101.20 series) from the proposed product list.”
Our rationale was straightforward:
- Imposing punitive tariffs on tea would not be effective in changing China’s practices relating to technology transfers, intellectual property and innovation because tea exports are a very small part of China’s overall tea sector. Most tea that China produces is consumed domestically. Moreover, the tea trade does not suffer from unfair technology transfers, theft of intellectual property or stifled innovation. Moreover, punitive tariffs would have a disproportionate economic impact on small and medium-sized enterprises because most of the U.S. importers (those that pay the tariffs) are small businesses.
- The United States is not a tea producing nation. There is no commercial tea grown that needs to be protected by tariffs, nor are there any farm-based jobs that would be protected.
- Like wine, tea varies dramatically due to local terroir (geography, climate and local manufacturing techniques). China has many unique teas that are unavailable elsewhere, due to their unique cultivars, terroirs and processing methods. In the area of specialty tea, many Chinese produced teas are unable to be sourced anywhere else in the world.
- The U.S.’s apparent consumption of Chinese tea is 5.9% of China’s exports and only 0.825% of their production. This quantity is not a meaningful amount of tea considering China’s huge production.
- When supply chains are challenged to reduce costs, in this instance, to mitigate the effect of the tariff, the choices are:
- Reduce headcount (resulting in potential job loss/unemployment)
- Forego investment (conservation of capital/lack of spending for innovation)
- Cheapen product (poorer quality to consumers)
- Increase prices (consumers are negatively impacted/inflationary affects)
The imposition of tariffs on Chinese tea will not impact the Chinese producer, exporter or government. However, it will negatively impact the U.S. consumer.
We welcome the reduction, but we will not be satisfied until we return to free and unencumbered trade of tea from all producing nations.
— Peter Goggi, President
Tea Association of the USA
Haelssen & Lyon North Americahas not seen a big backslash on either China imports or huge objections from our customers towards Chinese teas. The additional cost has been passed on to the American consumer and, at the end of the day, they paid the tax and will continue to do so (15% beginning in September and 7.5% going forward). Little has changed as far as passing on cost to the consumer, as there are still tariffs in place although a little lower.
As to other products and services from China subject to tariffs, such as packaging materials, packing and manufacturing done there, we gained a little business as some customers indicated they would rather have their products packed in the U.S. or Europe. This can reduce greenhouse gases, shorten the supply chain and help the environment. Why not pack tea right where it is blended or in the U.S., if that truly helps to reduce waste and unnecessary shipments?
In other words, we looked at China on behalf of our customers, checking carefully, and found some services could be accomplished in the U.S. or elsewhere with additional benefit, be it price or to the environment.
CEO, Haelssen & Lyon North America Corp, New York, NY
The U.S. is in a very weak position. It is true that China has had some negative consequences, but the Chinese economy was already slowing before the trade war. Most of the impact would have come about regardless. The U.S. has been hurt in more dramatic ways.
Where Seven Cups is concerned, our value proportion continues to be high and our prices are low, giving us a buffer when it comes to unexpected changes in cost. For us, a growing part of our business is with the many companies that we are serving around the world directly from China. No duties are paid on this tea as it is never imported into the U.S. We are very competitive with Chinese wholesalers for value and price. We don’t see that changing except to strengthen our position.
The increasing level of difficulty of direct sourcing, and the rapidly growing demand outside of the U.S. for quality tea makes us optimistic. This year we will be expanding our brokerage catalogue to increase purchasing options for tea. Problems in the global market are opportunities for us.
I think the existing “less than special” American tea industry makes it a less attractive market than abroad. The success of the specialty market, especially in Europe, is due to customers and business demanding better quality tea, and detailed transparency. The want the real thing and the information necessary to authenticate it.
— Austin Hodge, Founder
Seven Cups Fine Chinese Tea