Tea and coffee are among the 5,207 categories of US products China is now taxing at 35%.
In September the US began taxing $200 billion worth of Chinese goods at 10%, a rate that may rise to 25% in 2019.
The next day China levied tariffs on about $60 billion worth of imports from the US and vowed to “outlast” Washington D.C. in a trade war that has escalated since spring. The value of goods the US imports from China is much greater than the value of US shipped to China. As a result, China included many agricultural products with relatively small trade value. Tea and coffee were among the items named.
China’s latest round of tariffs is assessed at two levels, 5% and 10%. This is on top of a previous tariff increase in July. The cumulative tax on processed tea and coffee crossing the Chinese border is now 35%.
The greatest impact will be on coffee. In 2017 China imported $18 million worth of US coffee and $2.65 million worth of US tea, according to freight forwarding company Flexport which publishes import and export data sourced from the US Census statistical records.
China is the world’s largest tea producer and the largest exporter by value, earning $1.6 billion in 2017 from sales of mainly green tea. Since China is awash in tea, the country imported only $149 million worth in 2017, about 2% of global tea exports.
Imports are increasing. In 2005 China imported less than $225,000 of US tea. It is now one of the top dozen countries that buy tea from the US. Canada is the largest US tea importer by far, purchasing approximately $75 million annually, a number that has increased by $50 million since 2005. Japan is the second largest importer of US 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 a primary export market for US tea, behind Canada, but was surpassed by Japan in 2013. China Raises Import Duties on US Coffee and Tea to 35%
Impact on US exporters
Green coffee accounts for approximately 95% of value in coffee exports globally. Since the US produces very little green coffee for export the primary impact of the trade war is a loss of sales of fresh roasted, and premium soluble coffee.
China is one of the fastest-growing coffee markets globally. The trend is toward higher quality arabica. Consumption has nearly tripled in the past four years with imports growing at 16% per year. China ranks a modest 14th globally in coffee imports spending $521 million. A much smaller Japan ranks 5th, importing $1.4 billion worth of coffee last year but imports are declining in Japan. China offers significant growth potential.
The US buys $6.3 billion of the total $32.9 billion in global exports and drinks it all, exporting 7.5% less during the period 2012-17.
Levying a 35% tariff on $18 million in sales means customers in China will pay at least $6.3 placing roasters at a competitive disadvantage compared to identical coffee imported from Canada, Europe, or South American suppliers.
This is compounded by the fact that China has aggressively reduced tariffs by about a third in the past few years, and eliminated several non-tariff barriers to trade, inviting closer relations with Europe, a dominant player in solubles. China is the EU’s second-largest importer of agricultural products, valued at $21 billion in 2017. European countries account for less than 10% of China’s tea export volume but that is growing.
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.
Many countries with trade deficits with China are pursuing expanded market access at a time when China would like to diversify import channels in response to the US trade conflict. China cut duties on tea exports from India, South Korea, Bangladesh, Laos, and Sri Lanka by half to 7.5%.
US tea importers and wholesalers think it “highly unlikely” that the US will tax Chinese tea. Doing so will not generate significant revenue and the 10% tax would not discourage imports. But US President Donald Trump’s threat to tax all Chinese imports is a wildcard that makes it hard to predict.
Aaron Vick, senior tea buyer at The G.S. Haly Co., a tea importer located in Redwood City, Calif., said “Since the U.S. has no tea growing/producing industry to compete commercially withChina, 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.”