Follow the Leaders: Experts Weigh in on Tea Tariffs

Few Americans can assessthe immense impact of tariffs proposed for all Chinese goods, but they willeasily notice the difference between a $6 box of 100 teabags and one that sellsfor $7.50 (a price that does not include sales tax).

Import taxes couldconceivably cost Americans $135 billion, a sum that envisions economicpatriotism comparable to financing a major war. America’s “get tough on China”stance has its fans, but no one World TeaNews interviewed favors adding 25% to the cost of importing Chinese tea.

The May 10 roundof tariffs on $200 billion in Chinese goods is in effect. A final $300billion round would impose import taxes of up to 25% on the remainder of the$539.5 billion of Chinese goods that Americans purchase annually. In contrast,China purchased only $120.3 billion worth of U.S. goods last year, including asmall amount of tea (now subject to 25% Chinese tariff). The only products noton the list are pharmaceuticals, rare earth minerals, and some medical goods.

At the direction ofPresident Donald Trump, the office of the U.S. Trade Representative invitedpublic testimony prior to levying the latest round, setting a June 10 deadlinefor submissions.

The actual amount of thetariff has not been determined—only a range of 10-25%. All teas from Chinaincluding flowering teas, concentrates, soluble tea, extracts, tea juice, andmate are named on the Harmonized Tariff Schedule.

China is the secondlargest tea supplier and the most important source of green tea, so increasingthe price of Chinese tea will be significant. However, taxes on $30 billion inclothing; electrical equipment valued at $50 billion and $185 billion incomputers and electronics will ultimately cost Americans a lot more in taxes.Shoe executives predict canvas sneakers will increase by $15 and running shoesand boots by $50.

As the June 17 publichearings near, tea industry and trade association leaders are making their casein writing and hoping for an opportunity to voice their concerns. The intent isto exempt tea, or at least minimize the import tax. If that fails, tariffscould be enforced as soon as June 24. As of May 28, 113 comments had beensubmitted.

Follow this link to see the Tea Association of the USA’s two-page request to appear in which association president Peter Goggi articulates his concern.
In the meantime, teaimporters and blenders are speeding up shipments, stockpiling tea, substitutingother origins (Japan, Indonesia and Vietnam, even India) for Chinese green teaand cautioning clients to brace for price increases and a difficult period oftransition.

TheG.S. Haly Company has been working to mitigate the impact of this trade disputeon our customers since its inception in June of 2018, when the initial list oftariffs was enacted. First and foremost, we continue to rely on our suppliersin China to ensure that our quantity and quality requirements remain a toppriority ahead of any changes in the tariff schedule.

As thesituation grows increasingly dynamic, we are communicating with representativetrade organizations, reviewing our inventory position, and maximizing availablewarehouse space to prepare for future impact.  These actions will helpmitigate the impact of these punitive tariffs, the additional costs of storage,financing, shipping and the tariffs themselves, but still represent a smallportion of the overall cost that we have incurred to maintain our stock, sourcerelationships, and quality standards.

The issue is highly volatile, and fully dependent on the ongoing trade negotiations between the United States and China. All tea traders in the US are in the same position and navigating the situation as it continues to unfold. The bottom line is that teas from China will carry a notably higher price when imported under these new tariffs. Changes in supply and demand are likely as a result.

—Mike Spillane
President, G.S. Haly Company, Redwood City, CA

Firsd Tea stands behind the efforts of the Tea Association of the USA and their work to speak out against imposing these tariffs on Chinese tea imports. We have provided comment and submitted a request for hearing at the 17 June session that will determine whether 25% tariffs on Chinese teas and some $325 billion in other goods will be imposed. We are also reaching out to our customers to invite them to submit comment to U.S. Trade Representative, to contact their elected representatives, and to further raise public awareness of the wide-ranging damage this tariff will have on the U.S. tea industry and the economy. The U.S. consumed more than 84 billion servings of tea in 2018 alone, and more than half of Americans drink tea daily. Many of these servings contain Chinese teas, especially in the case of premium and specialty teas. The effects of a prolonged or lasting tariff on Chinese tea will harm U.S. tea companies, small businesses, and consumers.

In addition to supporting our customers by providing a voice of opposition, Firsd Tea is preparing to increase our inventory in advance of any tariff going into effect. Firsd Tea is the leading importer of Chinese specialty teas and Chinese matcha in the U.S., with both East and West coast warehousing facilities. Our current inventory and containers on the water mean we do not intend to raise prices on this available inventory. We are hopeful that cooler heads will prevail and that a speedy resolution to trade disputes is achievable. If negotiations break off or extend over a longer term, Firsd Tea will seek alternative solutions before a last-option decision to pass price increases to customers.

—Shengyuan Chen
Executive Director, Firsd Tea, Lyndhurst, NJ

As a ready-to-drink (RTD) tea maker and brand, Evy Tea is fortunately produced at a scale where we can import container loads of tea. These quantities mean the margin of import tax would not affect us horribly. The most expensive ingredient in my products is organic honey, and packaging cost affect me much more than tea leaves.  Personally I think it's going to be very interesting to see whether Chinese teas will stay competitive with lesser quality teas from South America within the RTD market.  Many iced teas and Kombucha makers still use fannings, though more of us (myself included) use nothing but full leaf. That is changing but we are still a very small percentage of the RTD market.

—Evy Chen
Founder, Evy Tea, Charlestown, MA

Our teas comedirectly from origin, in this case China to Canada, so we have not had to dealwith the threat of U.S. sanctions or their repercussions.   

Hopefully Canadawill manage to avoid diplomatic 'influence' from the U.S., though it wouldn’tbe the first time we follow suit to avoid a quarrel with our giant neighbor. Should U.S. consumers be hit with new tariffs and duties the situationmay even be advantageous to us as our large Chinese tea catalogue will becomeeven more attractive to U.S. buyers. 

—Kevin Gascoyne
Co-Owner, Camellia Sinensis, Montreal, QC, Canada

The past has demonstrated thattaxing tea really doesn’t go over that well in this country.

I doubt that we will see anyonedressed as Indians throwing tea overboard, but there is certainly a chance thatconsumers will have to pay the price – in fact, it’s likely.

Every tea importer must contendwith the same tax burden, raising the question “Does it really have to be Chinatea?”

Haelssen & Lyon stores most of itsteas in Germany. The import tax does not apply on products that are blended,flavored or packed there.

My advice to smaller tea retailersis to avoid direct imports and deal with importers in the U.S. These guys knowthe game. Small businesses get both a reliable source and a safe product.

—Holger Lohs
CEO, Haelssen & Lyon North America Corp, New York, NY

EDITOR’S NOTE: The U.S. is the third largest teaimporter globally, spending $488 million on tea imports in 2018. Canada, itslargest tea trading partner, annually ships about 55 million metric tons ofhigh value tea to the U.S.  Argentina issecond, shipping 54 million metric tons of low value tea, China was third,shipping 24 million metric tons (much of it high value). India and Vietnamfollow. China exported $1.8 billion worth of tea in 2018 (25.7% of all teaexports). The U.S. purchased only $360 million worth of Chinese tea, coffee,and cocoa combined with $94 million in direct purchases from China (but manymore times that in tea blended in Germany, Canada, and the U.K. During the pastfive years the fastest growing suppliers have been Japan (up 102%); Taiwan (up78.5%) and Canada (up 48.8%).

Last weekMonmouth University surveyeda representative national audience of Americans about trade and tariffs. Itfound that Americans are divided on whether imposing tariffs on goods importedfrom other countries is good for the U.S. and that they have a relativelypositive view of free trade agreements with other countries. Overall, 51% saidsuch agreements were good, 14% said they were bad, and 29% said they were notsure. The share of people with a positive view of the deals is up from November2015, when 24% said they thought free trade agreements were good.