Dan Haar: This tariff makes no sense for all the tea in China
Date: Wednesday, August 28, 2019
Source: The Middletown Press
The latest round of tariffs on Chinese imports, including a 10 percent tax on tea that’s set take effect Sept. 1, has Cindi Bigelow perplexed as much as she is upset.
Bigelow is CEO of Bigelow Tea Co., which already saw a disruption from aluminum tariffs — those colorful foil wrappers add up — and now faces a Trump-imposed hike on much of its core product.
“We’re the No. 1 green tea and pretty much all the green tea sold in the United States is from China. When you have the No. 1 ingredient that you’re using going up 10 percent, that’s a big hit,” Bigelow told me soon after she found out tea was on the new list.
And she won’t be able to pass along the higher cost, certainly not all of it and none of it right away -- in a fiercely competitive industry with supermarkets squeezing producers like teabags in a trash compactor. “So for our industry and businesses like ourselves, we just take it on the chin,” Bigelow said. “The employees will feel it more than the customers.”
Tea tariffs, really? Did President Donald Trump sleep through U.S. history?
A refresher here, the Boston Tea Party on Dec. 16, 1773 - in which patriots led by Samuel Adams dumped 92,000 pounds of tea from China into the harbor as a reaction to British taxes that walked, talked and quacked like tariffs - essentially launched the American Revolution.
“This is one of the reasons why we broke away from England,” said Peter Goggi, president of the Tea Association of the USA,who testified against tea tariffs.
And what gave rise to the Trump political backlash? The modern Tea Party movement, named for those same patriots.
Cut to the present. History aside, this tariff makes zero economic sense, whether you’re drinking U.S.-brewed Samuel Adams beer or U.S.-blended Bigelow Constant Comment from imported tea.
That’s true of a lot of products on the U.S. Trade Representative’s China tariff list. But the Tea Party history and the small, mercantile nature of the tea industry drives home the point with a sour spot of lemon and a scalding splash of hot water.
Tea for who?
Tariffs are meant to protect domestic industries. There is virtually no commercial tea farming in the United States. This country harvests 75,000 pounds a year, as compared with 275 million pounds imported, including 40 million pounds from China, more or less, according to figures from the Tea Association based on U.S. Department of Agriculture data.
“I’m buying everything I can from America,” Bigelow said, including lemons, mint, chicory and lots of other stuff. Let’s throw in labor, as the company — officially R.C. Bigelow Inc. — has its headquarters and all blending operations in Connecticut, with major operations in Kentucky and Idaho, a total of 400 people, half in the home state.
Tariffs are meant to protect strategic interests. Last I checked, our men and women in uniform might drink tea like the rest of us - half of all Americans on any given day — but we’re not talking about jet engines here. If anything, the history of tea-drinking points to peace, not war, tariffs aside.
Tariffs are meant to protect technology. The methods of making tea are pretty much unchanged since the Chinese launched the industry some 5,000 years ago. “I don’t think Chinese tea exporters have stolen trade secrets from the United States,” said Derek Scissors, a trade expert and Asia economist at the American Enterprise Institute.
Tariffs are meant to protect U.S. trade balance, but the volume of tea from China just doesn’t add up. The 38 million pounds of black and green tea imported from China in 2018 were worth about $90 million, Goggi said - in a U.S.-China trade war that covers perhaps $500 billion worth of goods.
Tariffs Are meant to punish the targeted country by hurting key industries. China produces 5.2 billion pounds a year, Goggi testified. It consumes about 4.5 billion pounds of the stuff and exports 720 million pounds to all countries. American purchases account for less than 1 percent of Chinese production.
In all, China produced 48 percent of the green tea imported into the United States last year and much more of the premium green, as Bigelow said. It’s unclear whether that product can be found in, for example, Vietnam - but the numbers are too small to hurt China even if we banned their tea altogether.
No stopping illogic
What’s happening is that tea is caught up in a broad tariff of pretty much everything China sells us, which Trump has exacted — with or without his advisers’ agreement — in stages. The Sept. 1 list amounts to about $112 billion worth of goods and that will be followed by a Dec. 15 list of $160 billion of goods that we might want to buy for Christmas, like consumer electronics.
I’m pretty sure Bigelow has gift box samplers, but alas, there’s no stopping illogic from this White House.
“We’ve moved beyond ‘Why are we putting tariffs on this product?’ to ‘We’re putting tariffs on everything,’” said Scissors, at AEI. “We’re no longer applying tariffs for any economic reason other than to coerce the Chinese into being better partners.”
As for tea, he added, “It’s just something to put tariffs on, which is kind of like what the British said.”
And that brings us back to Fairfield, Conn., where Cindi Bigelow is managing a growing enterprise, a dominant player in specialty teas, with growth of 6 percent in the last year in an industry that’s overall slightly down.
Bigelow won’t say how hard the tariffs hit but we’re talking about 2 billion tea bags a year for this company. The business has been privately owned and family-run since Bigelow’s grandmother founded it in a New York apartment in 1945.
A popular target
Trump’s multinational aluminum tariffs of 10 percent ended earlier from Mexico and Canada, where Bigelow sourced its foil — again, a product not available from U.S. makers. Despite that, Cindi Bigelow said, prices didn’t fall.
That’s basic economics, Scissors explained. Why should non-tariffed producers drop prices when they know tariffs still in force are driving up prices across the board?
Simply put, punitive tariffs don’t work except in extremely narrow cases. Why don’t we hear U.S. politicians of either party railing against the China tariffs? Because China is a popular target, Scissors and others say.
Scissors believes strongly that China needs to be coerced to stop stealing intellectual property and violating other global trade rules. Instead of tariffs, he recommends targeting centrally controlled Chinese enterprises and, where appropriate imposing financial penalties such as freezing assets.
“And even if you wanted to use tariffs, we’re kind of running out of tariffs that make sense,” Scissors said. “What is a 10 percent tariff against China? Nothing.
Trump’s accusation this summer that China is manipulating its currency downward is precisely the opposite of what’s happening, Scissors and other economists say. If anything, it is the tariffs that would drive Chinese currency down, if they worked.
And so, what we have is a tempest in a teapot that actually does hurt — us, not them.
“It becomes a battle when you have these kinds of irresponsible, quickly implemented tariffs like this,” Bigelow said, adding, broadly, “What I’m seeing happen multiple times a day are things that I didn’t think were possible...I’m speechless with what’s taking place.”