By Dan Bolton
Consumers in the US are now paying a putative 15% tariff on Chinese tea with the possibility of further increases as high as 25% in the months ahead.
Import fees for processed tea packaged for retail, and the packaging itself (tins, wraps, and ornate storage containers) normally incur a charge but for two and a half centuries tea from China has been regarded as a commodity with favored status.
This was codified when China joined the World Trade Organization (WTO). The new tariffs apply to all types of Chinese tea in all quantities, a small part of the current US administration’s $300 billion fourth round of import taxes. Tariffs on about half of those goods, including tea, were imposed Sept. 1. An Oct. 1 round was delayed to encourage ongoing negotiations and the administration announced it will hold off until Dec. 15 on a 15% tariff on popular holiday gift items including cell phones, computers and laptops, clothing, and shoes.
Once phased in, virtually every Chinese product imported into the US will be taxed. In retaliation, China levied comparable taxes on US goods shipped overseas including coffee and tea.
Tea industry representatives sought to exempt Chinese tea but were unsuccessful in removing it from the US Trade Representative’s List 4A which contains 3,805 subheadings covering consumer goods.
“We are sad that it is happening,” writes Michael Harney, v.p., Harney & Sons Fine Tea, “Over the 20 plus years I have been going China, one could see a problem coming. China growing and feeling its oats. Tea was an original item of trade. Now it is insignificant. Since we are insignificant, we have little impact. So, we can only dodge the elephants as they fight,” he writes.
“We are already paying 25% on packaging items from China. We have brought in extra tea already. However, over time our costs will go up,” he writes, noting that tea “is a competitive market, so our ability to pass on costs is limited.”
Austin Hodge, an importer of Chinese tea, writes that “throughout our history, there has never been a tariff on tea. A tax on tea supplied to us by the East India Company sparked the revolution.”
“The US tea industry is caught up in something bigger and stands to suffer because of it,” writes Jason Walker, marketing director at Firsd Tea, the New Jersey division of Zhejiang Tea Group, the world’s largest exporter of green tea.
To meet the challenge the company added to its supply of high-priority teas in US warehouses, with containers on the water right up until the deadline. In addition Firsd tea provided alternative or flexible options to customers on a case-by-case basis, including contract purchases with locked-in pricing and reserved quantities.
“Our ability to delay a price increase is largely dependent on our inventory brought in pre-tariff,” writes Walker.
How affects the US market
“America is a very large importer of tea but the majority of our tea comes from South America and Africa and more recently, Vietnam,” writes Hodge, founder of Seven Cups Fine Chinese Tea, in Tucson, Ariz.
“America loves cheap tea, and along with Germany, has put a lot of focus and energy into flavoring and blending to make it palatable. Chinese tea is really a minor player in the American market. The majority of Chinese tea imported into the US is very cheap to begin with. Cheap tea will be easily replaced from other sources, and if not, it won’t be missed,” he writes.
During the 3rd Annual China International Tea Expo, Firsd Tea noted that while tea imports to the US have declined the past two years, imports from China increased in volume and value in 2018. “US consumers are certainly capable of adding more teas to their lives. The US is one of the top importers of tea. But compared to other nations, US per capita tea consumption is still quite low. On any given day, only half of the US is drinking tea, and most aren’t even drinking a cup a day,” writes Walker.
According to US Census figures the US imported 21.2 metric tons of tea in 2018, valued at $140.6 million, up from $132.6 million in 2017.
The increase can be attributed to imports of higher value teas, especially green teas, explains Walker, who adds that imports of black tea declined from 7.5 to 6.7 metric tons during the same period. Now with tariffs in place further declines are expected given the many alternative suppliers of black teas.
“If the tariff holds, low cost, commodity teas that lack any distinctive character may get sourced from alternative countries. However, many organic and other premium and specialty teas are still likely to come from China,” writes Walker.
It is unclear how green tea will fare, but the most likely outcome is the diversion to Europe and Canada and the Middle East where much of the world’s tea is blended. Teas “substantially transformed” during processing are classified as re-exports, taking on the origin where the transformation occurred provided the resulting product results “in a change in use.” Customs and border protection (CBP) previously ruled that when olive oil from Spain and Italy were blended, markings had to reflect the country of origin of the constituent oils.” If that proves the case with tea will the tea be subject to tariff? Or will only the portion originating in China be subject to the tax. Chinese Keemun is commonly blended with Kenyan, Sri Lankan, and Indian tea.
Eliot Jordan, tea master, Mighty Leaf writes that “to keep tea alive, everyone in the chain will have to absorb some pain: the producer, the exporter, the importer, the blender, the packer, the brand, the grocer, etc. I expect most parties will grit their teeth and hold fast at first — but if the tax looks permanent it’s going to have to be worked into the final price to the consumer.”
“For specialty China teas, I don’t know where people will turn – there are just too many unique types from this origin. I hope customers will understand that the tariffs are a tax paid by American companies that bring tea to the USA market – it’s not paid by the Chinese. Tea is the national drink of China, it’s beloved in America, and it should be traded freely and enjoyed in a spirit of international connection, not conflict,” writes Jordan.
One logical beneficiary is Taiwan.
“Oolongs grown in Taiwan account for about 20% of world production. Tea production has declined to 13,000 metric tons in recent years. The country produced 17,000 metric tons in 2012 worth $245 million. Production was valued at $180 million in 2016.
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.
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).
Uncertainty leads to volatility
Aaron Vick, senior tea buyer, The G.S. Haly Company, writes that, “The G.S. Haly Company has been working to mitigate the impact of this trade dispute on our customers since its inception in June of 2018, when the initial list of tariffs was enacted. First and foremost, we continue to rely on our suppliers in China to ensure that our quantity and quality requirements remain a top priority ahead of any changes in the tariff schedule.”
“The issue is highly volatile, and fully dependent on the ongoing trade negotiations between the United States and China. All tea traders in the U.S. are in the same position and navigating the situation as it continues to unfold. The bottom line is that teas from China carry a notably higher price when imported under these new tariffs. Changes in supply and demand are likely as a result,” he writes.
“We hope this will cause people to give more consideration to other tea origins now that pricing will be more competitive. They have so much to offer and are so often overlooked in a knee-jerk response to choose the cheapest option which has historically been China teas,” writes Vick.