The economic impact of the pandemic makes it unlikely that China will meet the expectations of a “phase one” agreement negotiated with the US in January. As a result, the US said it might initiate another round of tariffs targeting China.
On May 8, to keep what have been productive discussions on track, the US Trade Representatives’ office released this statement: “In spite of the current global health emergency, both countries fully expect to meet their obligations under the agreement in a timely manner.”
In January, China agreed to a 2020 increase of $76.7 billion over 2017 imports. China has since purchased less than $25 billion of US goods, which is a decline of 5.9% through April compared to 2019, reports Bloomberg. The 2020 goal is almost $200 billion in sales.
US trade plunged in March. Overall, the US bought 6.5% fewer goods than during the same period in 2019. Imports of Chinese tea through March 2020 declined 23% compared to the same period in 2019, according to the global agricultural trade system database (GATS). Lower sales are due, in part, to a 15% tariff imposed in September 2019. The duty was later reduced to 7.5% in February 2020, but by then, many blenders had switched suppliers. During the first quarter in 2019, the US imported Chinese tea valued at $32.0 million, a total that declined to $24.7 million during the same period in 2020.
Volume is down 31% from 8.7 million metric tons (m.t.) to 6.0 million m.t. through March. China is predominately a green tea exporter, but volumes of every category slid, except organic flavored green tea. Jason Walker, marketing director at Firsd Tea in New Jersey, the US offices of China’s largest tea exporter, writes that while “US imports of Chinese black tea have generally declined over the past five years, more recently, the US-China trade war and coronavirus pandemic have contributed to this slowdown. However, organic black tea imports from China have been rising, with a 66% increase in volume.”
First quarter export volume dropped to 72,000 metric tons, down 9.7% compared to the same period in 2019, according to China Customs Data (reported by Walker). Export value for Chinese tea shipped to the US dropped 1.3% to $373 million. The average price per kilo for Chinese tea exports increased 9.3% to $5.17. Since workers were able to return to the fields before April, tea production in China was spared the pandemic-associated drop in yield experienced in India and Sri Lanka. Imports recorded during the first quarter include little of the spring harvest. Second-quarter statistics will be more revealing, as they will reflect the logistical challenges that are still rippling through the supply chain.
“Firsd Tea has been watching the activity at US ports for indications of delays and disruptions. We have not seen any to date,” writes Walker. “In terms of containers leaving China, we have not seen any disruptions since normal business resumed around the end of February in China. At this point, China operations have implemented monitoring systems and PPE [personal protection equipment] requirements for workers. We are watching for indications of flare-ups, but so far, we don’t see evidence of another wave of infection.”
Blenders initially found themselves racing to meet the demand for packaged goods, particularly private label for grocery, but orders for foodservice grades has virtually disappeared due to the unprecedented restaurant and retail tea closures. This alone will substantially reduce tea imports from every producing country.
Specialty tea importers receiving Chinese tea this spring say that demand remains steady despite a three-fold increase in airfreight, which is a far greater expense than the 7.5% tariff.
While the US administration is angry at China, the escalation of retaliatory measures challenges the prevailing business assumptions guiding American companies in China. US companies invested $14 billion in new factories and other long-term investments in China last year, according to the National Committee on US-China Relations and the Rhodium Group, a consultancy that tracks foreign direct investment flows.Shawn Donnan, writing in Bloomberg Supply Lines, suggests, “It’s worth remembering every so often that it is still businesses and not governments that really make the decisions that drive globalization and supply chains and that they aren’t decoupling yet.”