A 15% tariff to punish Chinese trade practices is now impacting tea.
The Tea Association of the USA points out that U.S. consumers will pay the price for the unprecedented tariffs on Chinese tea effective this week. “It’s the consumers that get hurt,” says association president Peter Goggi.
Industry leaders say the tax will be disruptive, not debilitating, but as Bigelow Tea CEO Cindi Bigelow explained to the Hartford Currant, “It’s probably a $2 million impact on our company — right out of our bottom line.”
Goggi says tariffs have a “disproportionate economic impact” on small and medium-sized businesses responsible for paying the tariff.
“We are already paying 25% on packaging items from China,” said Mike Harney, vice president at Harney & Sons Fine Tea.
Bigelow said last year’s tariff on aluminum forced the company to raise prices.
“China is one of the few countries that you can get the thinnest-gauge aluminum available. Nothing is made like that in the United States. Nothing. When the aluminum impacted us, it was devastating. We had to increase the price, and the customer saw that,” she said, adding that the oils in tea have to be protected for tea to retain its flavor, “and the only thing to protect them is aluminum pouches.”
In anticipation of the tariff Harney and others stocked up, “We have brought in extra tea already. However, over time our costs will go up,” he explained. “Tea is a competitive market, so our ability to pass on costs are limited.”
Why not switch origins?
“The only place for us to get the smooth-tasting, quality green tea is from China,” Bigelow told the newspaper. “You can’t just go to another country.”
“China is our largest supplier. India had a bad year; Sri Lanka teas have been sliding. So, China is our most important source and not replaceable,” said Harney.
Thomas Shu and his partner Josephine Pan have owned ABC Teas since 1978. They import a range of teas for their JT & Tea wholesale operation in California. Shu, who is designated Taiwan’s Tea Ambassador, said that while Taiwan cannot approach the volume of China’s annual production of 5 billion kilograms, tea from Taiwan meets or exceeds standards of quality for flavor as well as USDA and EU and Japanese rules for organic production. Goggi said that the US Trade Representative (USTR) does not classify tea from Taiwan as Chinese origin.
Indonesia produces 50 varieties of tea, mainly green, but the focus is on bulk production of CTC (cut, tear, curl) tea. It is the world’s seventh largest producer at 140,000 metric tons in 2018, the highest production in the last four years. But specialty teas make up only about 10% of the total.
Japan is also a major green tea producer but the Japanese drink virtually all their top-quality tea (matcha is the exception).
The trade war continues to escalate
In August the Trump Administration announced a 10% tariff on tea that was later bumped to 15% and could go as high as 30%. The new rule covers all Chinese tea including green and black tea packaged in bulk (shipped in packages greater than 3 kilograms).
According to the latest press release USTR will begin the process of increasing the tariff rates on products List4B to 30% on October 1 following a notice and comment period.
In July, Goggi noted that President Donald Trump cancelled the proposed tariff when the Chinese agreed to return to the negotiating table. While negotiations continue, a timely resolution seems unlikely.
The latest clash has rewritten the rules of trade “in ways that have no recent historic precedent” and are driving the world’s two largest economies further apart, Ana Swanson of the NYT writes.
On Sept. 3 the New York Times reported the average tariff on Chinese goods is now more than 21%. Tariffs will cost American households and average $460 by year end. Beijing responded with tariffs of its own on American goods and filed a formal complaint with the World Trade Organization.
In August the Trump Administration, expressing concern for retail sales during the holidays, delayed until Dec. 15 tariffs on several categories of goods including laptops, cell phones, toys and other products “based on health, safety, national security, and other factors.” No tea products appear on List 4B.
China retaliated Aug. 23 by increasing tariffs to 10% and 15% on $75 billion of American goods effective Sept. 1. Hours later and just prior to the G7 conference in France, Trump added 5% to the 10% proposed for $550 billion in Chinese goods, including tea, and threatened 30% tariffs on a long list of consumer goods late in the year. He then expressed regret that he had not raised tariffs even higher.
“As you know, I testified before the Section 301 Committee on June 21,” said Goggi. The Section 301 Committee received a total of 2,932 comments on all goods proposed as well as testimony from more than 300 witnesses. The tax applies to all products that are entered for consumption or withdrawn from warehouse for consumption on or after Sept. 1 (List4A) and Dec. 15 (List4B).
“Nothing can be done because the current administration is using tariffs as a weapon, and we’re in the pathway of this,” observes Bigelow. “We can only hope that Washington, D.C., will wake up and see what they are doing to companies around the United States of America. That’s all we can hope for. I can’t speak for Trump, but anyone who is in that position should know the impacts on companies,” said Bigelow.