Tea was not among the 5,745 Chinese imports subject to a 10 percent U.S. tariff this week and is unlikely to be listed, but tea wholesalers are weighing their options.
China promptly retaliated to the increase with additional levies of either 5 or 10 percent on $60 billion worth of United States imports and canceled talks to resolve a trade war of growing concern. The 5,207 U.S. products that China listed include coffee, fruit, vegetable juices and six types of tea in the Harmonized System Code 0902 (see detailed descriptions below). Tea imported from the U.S. will now be taxed at 35 percent.
Tea Association of the USA president Peter Goggi said, “tariffs on tea (imported from China) are highly unlikely.”
“The tea growing industry in the U.S. is not yet large enough to warrant tariff protection,” Goggi explains. “While progress has been made and tea is being grown around the U.S., most of the production sites in the U.S. are small and artisanal in nature and are not in any position to replace the volume of Chinese tea in our markets.”
China exports 724,634,383 pounds of tea annually, of which 42,744,989 comes to the U.S. This means that in percentage terms, the United States’ apparent consumption of Chinese tea is 5.9% of their exports and only 0.825% of production, said Goggi.
“The tea industry is vanishingly small by the standards of both countries’ economies and thus very little impact could be produced by including tea in the tariff scheme, and so we hope that tea may escape the notice of the competing interests due it’s diminutive stature on the economic stage,” says Aaron Vick, senior tea buyer at The G.S. Haly Co., a tea importer located in Redwood City, Calif.
Short term tactics
Tariffs create contradictory incentives; on one hand accelerating imports from China before the higher tariffs are in place while looking to other markets for substitutes.
Manjiv Jayakumar, chief executive at QTrade Tea & Herbs, said his company “is in the midst of discussions with various clients on the best strategies to address the risk of tariffs on their particular supply chains that are connected to China.”
“Some of these measures may help in the short run and reduce the costs of tea and ensure availability,” he said. “But the reality is that any measure is likely to only help in the short term and has its own costs and risks (holding costs, shelf life etc.) so they are tactical at best,” explains Jayakumar.
“Over the long term, developing alternatives to China-based supplies is going to be a slow and potentially more expensive process given some of the unique teas that China produces, especially at the scale it produces them,” said Jayakumar.
China is the world’s largest tea producer and as of last year, the tea exporter with the greatest value ($1.6 billion). China dominates both sectors in exports in the green tea category, but North Americans largely prefer black tea.
The latest $200 billion in tariffs adds an immediate 10 percent tariff, with a threat to increase tariffs to 25 percent in January.
The original $34 billion tariffs applied to raw and finished metal, industrial machinery and components, minimizing harm to consumers. That was later increased by $16 billion. The Chinese did the same, targeting soybeans, natural gas, washing machines and automobiles and avoiding every-day items. The latest round lists bicycles, furniture, and common consumer goods. There are a few exemptions, such as car seats and playpens, and safety products. Click here to see the entire list.
The latest escalation and a potential fourth salvo will largely involve consumer goods, reducing the purchasing power of U.S. households.
President Trump said that he is considering tariffs on an additional $276 billion in goods, a step that would include virtually every product category imported from China.
Tariffs are now levied on about half the $517 billion in Chinese goods the U.S. imported in 2017. China’s economy is not as dependent on exports as many think. Last year the entire sector accounted for just 18.5 percent of China’s gross domestic product, down from 35 percent in 2007. China imported only $130 billion in U.S. goods in 2017, just 18 percent of its total. Ramping up the fight will likely involve other retaliatory countermeasures.
“I cannot see anything more drastic than the 10 percent generalized tariff that has been put forward in the last exchange being applied to our product,” says John Smith, vice president at Henry P. Thomson tea importers in Gladstone, New Jersey.
“The question then becomes what impact rising interest rates, storage costs, and other carrying costs will have on your cost of goods sold, and do these additional expenses offset any benefit gained by front loading shipments,” said Smith.
Vick says that should tariffs be imposed, “tea’s already long shelf-life will become one of its most valuable assets: though all good brokers cycle their stocks on a yearly schedule, most black teas can easily last for two years with little character degradation provided proper warehousing conditions. Additionally, modern standards of packing extend and augment that quality in all phases of storage: during ocean shipment, bulk warehousing, and retail packing.”
“Things could change, but right now tea is safe,” says Shengyuan Chen, executive director at Firsd Tea North America, Zhejiang Tea Company’s U.S. wholesale subsidiary. As a precaution, the company is stocking up its Lyndhurst, New Jersey warehouse.
This is because “the public’s expectation about [President Donald] Trump’s next policy step may stimulate the potential purchasing power of the market,” said Chen.
“In the long term, [tariffs] will hurt the national economy of the two countries, hence the purchasing power of the consumers as well,” she said. “From this point of this view, I believe the tea business will also be affected in the future if the trade war continues,” said Chen.
“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,” said Vick, adding, “That just looks like bad public relations not only internationally but domestically as well: Why drag the U.S. tea retail industry into a fight when there’s no domestic production to protect?” he asks.
“That action won’t sit well with U.S. based brokers, wholesalers or retailers,” said Vick.
One hundred and twenty-nine years in the industry have taught us not to panic; this industry is a steady little ship we’ve all built, he observes.
“Our past experiences with both supply and price volatility suggest that our wholesale customers are savvy enough to know this truth. In the past they have generally continued with business as usual, following the sensible course of taking their purchasing cues from their customers instead of the tabloids,” he said.
*Tea imported from the U.S. to China is now subject to a 35 percent tariff. Tariff applies to CIF (Cost+Insurance+Freight). Eight-digit HS Codes listed by the Chinese Ministry of Trade: 0902-
1090-2090 green tea categories and 3090-4090 black tea categories along with
1010 Scented tea with 3kg net weight or less
1090 Other green tea with 3kg net weight or less
2090 Other green tea with net weight greater than 3kg
3010 Oolong tea with 3kg net weight or less
3090 Other fermented and semi-fermented black tea with net weight 3kg or less
4090 Other fermented and semi-fermented black tea with net weight greater than 3kg