Follow the Leaders: Tea Tariffs Will Be Disruptive Not Debilitating

In this installment of Follow the Leaders, respondents were asked to share their reaction, concern and advice with tea industry peers on the U.S. decision to charge an import tax on tea from China.

Industry leaders predict the impact of a 15% U.S. tariff on Chinese green tea, effective Sept. 1, will be disruptive but not debilitating. The tariff applies to all Chinese tea including black tea in bulk.

In the U.S. consumers view tea as an affordable luxury, competitively priced. The tea market is diverse and resilient and retailers have many sources of fine tea globally.

An import tax of 25% to 30% presents more serious challenges. Tea suppliers say that raising prices 25% will trigger widespread reformulation of blends and place one-of-a-kind teas at a market disadvantage. Sellers offering these teas will ultimately prefer dealing with retailers in non-tariff lands.

The group of wholesalers, importers, blenders, independent and chain retailers and industry executives were invited to answer their choice of the questions that follow:

  • Assess the overall impact of a 15% tariff on the marketability of Chinese tea: speed bump or barrier.
  • What alternatives are available to wholesalers and retailers?
  • Discuss pricing in those instances where substitution is not an option. If you are a supplier will you pass along portions or the entire cost of this “tax” to consumers at 15%. At 25% would you pass along a portion or the entire cost of this tax?
  • How will customers react to this decision? Will this tax encourage tea drinkers to switch from China to other tea origins?

Editor's Note: Updated Aug. 25 to reflect the U.S. Trade Representative's modification of tariffs raising the Sept. 1 tranche from 10% to 15% and the Oct. 1 tranche from 25% to 30%.

A 10% tariff on $300 billion of goods, including tea, was announced Aug. 1. President Trump later stated that tariffs on some goods could be raised to 15% and as high as 30%. Last week the U.S. Trade Representative confirmed that tea is on the Sept. 1 list (List 4A). The rule covers all Chinese tea including green and black tea packaged in bulk (shipped in packages greater than 3 kilos).

This is the latest press release from USTR (8/23) which states "for the 25% tariffs on approximately $250 billion worth of Chinese imports, USTR will begin the process of increasing the tariff rate to 30%, effective October 1 following a notice and comment period."

"For the 10% tariffs on approximately $300 billion worth of Chinese imports that the President announced earlier this month, the tariffs will now be 15%, effective on the already scheduled dates for tariff increases on these imports," according to USTR. 

Here is a link to List4A products (effective Sept. 1) and to List4B products (effective Oct. 1 with some delayed until Dec. 15).

In July, Goggi noted that President Donald Trump cancelled the proposed tariff when the Chinese agreed to return to the negotiating table. Negotiations may yet resume again but he said at this stage the Sept. 1 tariff appears likely.

In August the Trump Administration, expressing concern for retail sales during the holidays, delayed until Dec. 15 tariffs on several categories of goods including laptops, cell phones, toys and other products "based on health, safety, national security, and other factors." No tea products appear on List 4B.

China retaliated Aug. 23 by increasing tariffs to 10% and 15% on $75 billion of American goods effective Sept. 1. Hours later and just prior to the G7 conference in France, Trump added 5% to the 10% proposed for $550 billion in Chinese goods, including tea, and threatened 30% tariffs on a long list of consumer goods late in the year. He then expressed regret that he had not raised tariffs even higher. It is clear that tea will not be taxed at 30% but it is likely that Chinese green tea in any quantity will pay a 15% duty beginning next week.

“As you know, I testified before the Section 301 Committee on June 21.*  Additionally, rebuttal comments were submitted after all testimony was concluded,” writes Goggi.  

This is a link to his rebuttal comments sent to the USTR.

Peter Goggi, President
Tea Association of the USA

*The Section 301 Committee received a total of 2,932 comments on all goods proposed as well as testimony from more than 300 witnesses. The tax applies to all products that are entered for consumption, or withdrawn from warehouse for consumption on or after Sept. 1 (List4A) and Dec. 15 (List4B). Comments may be viewed here.

We are sad that it is happening. 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. 

Pleaseassess the overall impact of a 10% tariff on the marketability of Chinese tea:speed bump or barrier.

Harney: 10% is 10%, we will try to work our way around it. 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. Please note it is a competitive market, so our ability to pass on costs are limited.

Whatalternatives are available to wholesalers and retailers?

Harney: China is one of several tea suppliers, it is our largest supplier. India had a bad year; Sri Lanka teas have been sliding. So China is our most important source and not replaceable.  

Michael Harney, Vice President
Harney & Sons Fine Tea

As we testified in before the U.S. Trade Commission, Firsd Tea would like to reiterate that the tariff will not harm the China tea industry, but will harm U.S. tea businesses, and will not protect any tea technology or US tea production. The U.S. tea industry is caught up in something bigger and stands to suffer because of it. However, recent history has also shown that some of these threats of tariff are mainly being used as leverage to close a trade deal, and do not necessarily go into effect. Our position, as before, has been to hope for the best and prepare for the worst.

What alternatives are available to wholesalers and retailers?

Walker: In addition to the previous steps we have taken (testimony and bulking up our U.S. inventory), Firsd Tea is working to: 1. adding further supply of high-priority teas in our U.S. warehouses, with containers on the water and others scheduled to depart prior to Sept 1, and 2. providing alternative or flexible options to our customers on a case-by-case basis, including contract purchases with locked-in pricing and reserved quantities.

Jason Walker, Marketing Director
Firsd Tea

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. For the first time, a tax on tea has been threatened by the Trump administration. Will it happen?

The chances today are high.

How will it affect the American 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. 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 U.S. is very cheap to begin with. Cheap tea will be easily replaced from other sources, and if not, it won’t be missed.

Austin Hodge, Founder
Seven Cups Fine Chinese Tea

It’s frustrating since Chinese tea is being held hostage in a larger and very political battle.  It makes planning very difficult because no one knows if, when, or how much the tariff will actually affect the cost of tea over the next 12 months.  Acting hastily could be just as bad as doing nothing at all, so buyers in the industry are left to their best guess as to what to do.  But of course since so many teas are only available seasonally there’s very little chance to wait things out.  While I’m personally optimistic this will all get resolved once the political posturing ends, it’s worth noting there was once a two-decade-long total embargo on China (lifted in 1971) - let’s hope we don’t go back to those days.

Please assess the overall impact of a 10% tariff on the marketability of Chinese tea: speed bump or barrier.

10%is only a speed bump.  More than that and the industry will need to adapt.

What alternatives are available to wholesalers and retailers?

Atthe bottom end of the quality range, there are other origin options.  Atthe specialty end, it’s impossible to have a credible program that doesn’tinclude China teas, so there you are.

Discuss pricing in those instances where substitution is not an option. If you are a supplier will you pass along portions or the entire cost of this “tax” to consumers at 10%. At 25% would you pass along a portion or the entire cost of this tax?

Tokeep tea alive, everyone in the chain will have to absorb some pain: theproducer, the exporter, the importer, the blender, the packer, the brand, thegrocer, etc.  I expect most parties will grit their teeth and hold fast atfirst – but if the tax looks permanent it’s going to have to be worked into thefinal price to the consumer.

How will customers react to this decision? Will this tax encourage tea drinkers to switch from China to other tea origins?

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.

Eliot Jordan, Vice President Tea
Mighty Leaf

Our position remains unchanged and our strategy.

Please assess the overall impact of a 10% tariff on the marketability of Chinese tea: speed bump or barrier.

Speed bump.  The birthplace of tea and cradle of tea diversity is not going to be sidelined by a cost increase.  It does however make other origins more cost competitive on the commodity end of the spectrum; so this may in fact encourage China to de-emphasize those cheaper standards and focus effort on their better standards. Tea has historically been undervalued anyway.

I question the assurancethat China tea repacked in Canada or Germany will indeed be able to gain entryunder the guise of an alternate country of origin ongoing...  Perhapsbriefly, perhaps if flavored or blended, but I’d expect USCBP to start askingprobing questions.

There are no alternatives to the many iconic China teas and copies of them arenever up to par.  I expect there will always be a need for proper Yunnanand Panyang Congou no matter what the import penalty.

We hope this will cause people to give more consideration toother tea origins now that pricing will be more competitive.  They have somuch to offer and are so often overlooked in a knee-jerk response to choose thecheapest option which has historically been China teas.  

The G.S. Haly Company hasbeen working to mitigate the impact of this trade dispute on our customerssince its inception in June of 2018, when the initial list of tariffs wasenacted. First and foremost, we continue to rely on our suppliers in China toensure that our quantity and quality requirements remain a top priority aheadof any changes in the tariff schedule.

As the situation growsincreasingly dynamic, we are communicating with representative tradeorganizations, 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.

Aaron Vick, Senior Tea Buyer
The G.S. Haly Company