In this installment World Tea News invited tea industry leaders who closely follow trade issues to comment on the reduction of tariffs on Chinese imports from 15% to 7.5% effective Feb. 14, 2020.
We at Firsd Tea applaud the signing of the Phase 1Agreement as a step toward easing trade tensions between the U.S. and China. Wealso share the industry’s optimism as to what this agreement means for teabusinesses here in North America.
That said, we are still awaiting the solid facts and details regarding theimplementation of the agreement. The actual wording of the deal signed on 15January is quite broad and superficial. Shippers, brokers and other members ofthe industry are STILL waiting to see the official document that outlines WHATitems (HS codes) will be affected by the Phase 1 Agreement, and WHEN thechanges will take effect. There is a lot of optimism in the air―we assume it isNOT unfounded.
For the near-term, if not beyond, the tea industry may need to shift itsprocurement habits to account for greater cost fluctuation on imports from allcountries of origin. When any and all international trade agreements are up fornegotiation, there is a greater advantage to those with more accurateprojections who can buy at the right time and place. It behooves tea companiesto have a plan and shop wisely.
Perhaps this shift can have a positive effect. We may be seeing a New Dawn oftea as a more valuable product―one that consumers choose to pay a premium forbecause of its quality and unique character, its sustainability, and itsability to improve their quality of life.
— Jason Walker
Marketing Director, FirsdTea North America
While the “good news” is that the tariffs have beenreduced from 15% to 7.5%, our position has not changed since the imposition ofthese “taxes” by the Trump Administration.
When we testified at the hearing held by the US TradeRepresentative (USTR), we stated:
“Due to the disproportionate economic harm these tariffs would have on U.S. tea industry and U.S. consumers, our recommendation is to remove black and green teas (HTS subheadings: 0902.10.10, 0902.10.90, 0902.20.10, 0902.20.90, 0902.30.00, 0902.40.00) and instant tea / extracts (Instant/Extracts of Tea (2101.20 series) from the proposed product list.”
Our rationale was straightforward:
- Imposing punitive tariffs on tea would not be effective in changing China’s practices relating to technology transfers, intellectual property and innovation because tea exports are a very small part of China’s overall tea sector. Most tea that China produces is consumed domestically. Moreover, the tea trade does not suffer from unfair technology transfers, theft of intellectual property or stifled innovation. Moreover, punitive tariffs would have a disproportionate economic impact on small and medium-sized enterprises because most of the U.S. importers (those that pay the tariffs) are small businesses.
- The United States is not a tea producing nation. There is no commercial tea grown that needs to be protected by tariffs, nor are there any farm-based jobs that would be protected.
- Like wine, tea varies dramatically due to local terroir (geography, climate and local manufacturing techniques). China has many unique teas that are unavailable elsewhere, due to their unique cultivars, terroirs and processing methods. In the area of specialty tea, many Chinese produced teas are unable to be sourced anywhere else in the world.
- The U.S.’s apparent consumption of Chinese tea is 5.9% of China’s exports and only 0.825% of their production. This quantity is not a meaningful amount of tea considering China’s huge production.
- When supply chains are challenged to reduce costs, in this instance, to mitigate the effect of the tariff, the choices are:
- Reduce headcount (resulting in potential job loss/unemployment)
- Forego investment (conservation of capital/lack of spending for innovation)
- Cheapen product (poorer quality to consumers)
- Increase prices (consumers are negatively impacted/inflationary affects)
The imposition of tariffs on Chinese tea will not impact the Chinese producer, exporter or government. However, it will negatively impact the U.S. consumer.
We welcome the reduction, but we will not be satisfieduntil we return to free and unencumbered trade of tea from all producingnations.
— Peter Goggi, President
Tea Association of the USA
Haelssen & Lyon North Americahas not seena big backslash on either China imports or huge objections from our customerstowards Chinese teas. The additional cost has been passed on to the Americanconsumer and, at the end of the day, they paid the tax and will continue to doso (15% beginning in September and 7.5% going forward). Little has changed asfar as passing on cost to the consumer, as there are still tariffs in placealthough a little lower.
As to other products and services from China subjectto tariffs, such as packaging materials, packing and manufacturing done there,we gained a little business as some customers indicated they would rather havetheir products packed in the U.S. or Europe. This can reduce greenhouse gases,shorten the supply chain and help the environment. Why not pack tea right whereit is blended or in the U.S., if that truly helps to reduce waste andunnecessary shipments?
In other words, we looked at China on behalf of ourcustomers, checking carefully, and found some services could be accomplished inthe U.S. or elsewhere with additional benefit, be it price or to theenvironment.
—Holger Lohs
CEO, Haelssen & Lyon North America Corp, New York, NY
The U.S. is in a very weak position. It is true thatChina has had some negative consequences, but the Chinese economy was alreadyslowing before the trade war. Most of the impact would have come aboutregardless. The U.S. has been hurt in more dramatic ways.
Where Seven Cups is concerned, our value proportioncontinues to be high and our prices are low, giving us a buffer when it comesto unexpected changes in cost. For us, a growing part of our business is withthe many companies that we are serving around the world directly from China. Noduties are paid on this tea as it is never imported into the U.S. We are very competitivewith Chinese wholesalers for value and price. We don’t see that changing exceptto strengthen our position.
The increasing level of difficulty of direct sourcing,and the rapidly growing demand outside of the U.S. for quality tea makes usoptimistic. This year we will be expanding our brokerage catalogue to increasepurchasing options for tea. Problems in the global market are opportunities forus.
I think the existing “less than special” American teaindustry makes it a less attractive market than abroad. The success of thespecialty market, especially in Europe, is due to customers and businessdemanding better quality tea, and detailed transparency. The want the realthing and the information necessary to authenticate it.
— Austin Hodge, Founder
Seven Cups Fine Chinese Tea