STiR coffee and tea magazine

STiR coffee and tea 47 Importers and wholesalers who pay tariffs attempt to pass them along the supply chain, resulting in price increases and decreased consumer demand. In recent years, a dozen trade agreements, such as NAFTA and the 2020 USMCA, have been negotiated between the South American and European countries and in the Pacific Rim. Flash- points between the US and Japan over autos in the 1980s and the 2004 Boeing-Airbus Dispute were amicably resolved under a framework established by the World Trade Organization. Trump's tariffs are driven by economic nationalism, concerns over the rising trade deficit, and the belief that raising barriers will revitalize American manufacturing, including autos and steel, aluminum, and heavy machinery. Weighing against these ambitions are falling stocks, rising infla- tion, anxious consumer sentiment, declining employment, and busi- ness relationships that will take years to rebuild. There has been a net loss of 6.4 million manufacturing jobs in the US, represent- ing a 33% decline since the 1979 peak of 19.4 million jobs. Trump blames globalization, but economists say that automation and tech- nology are why fewer jobs exist. Despite job losses cited by the Administration, US manufacturing output (by value) has increased since 1979, albeit with a significantly smaller workforce. *Footnote: China initially retaliated by selectively imposing 20% duties, which were increased to 34% and applied to all US goods after the US escalated the trade war. The tit-for-tat continues with a 145% rate on goods imported from China and 125% tariff on US exports to China. The US states that tariffs are calculated based on existing import duties for tea, which vary by type and trading partner, as well as "non-monetary" barriers mentioned by President Trump. These include value-added taxes and export fees, ensuring that the total cost of exporting tea to China matches the duties paid by US wholesalers and retailers when importing Chinese tea from the mainland or Hong Kong. In practice, the reciprocal tariffs announced on April 2 were arbitrary and loosely based on bilateral trade deficits, not reciprocity. ● Compressed Margins Tariffs are taxes that affect the costs of landing. Price competi- tiveness declines as wholesale margins shrink. Importers and wholesalers who pay tariffs attempt to pass them along the sup- ply chain, resulting in price increases and decreased consumer demand. ● Diversification of Sourcing Since importers avoid sourcing tea from countries with high tar- iffs and non-preferential access, diversifying sources serves as a hedge, as traders seek multiple suppliers at varying tariff levels to manage costs and adapt to unpredictable policy changes. ● Trade Policy Uncertainty | Disruptions Geopolitical disputes, retaliatory measures, and trade warfare disrupt established trade relationships, sometimes for decades. Long-range planning becomes unpredictable, forcing tea pro- fessionals to monitor tensions over policy to avoid regulatory shocks. The camaraderie of the tea trade wanes as the stress of uncertainty intensifies. ● Local Manufacturing High tariffs can incentivize local blending, packaging, and processing. Tea manufacturing is a $1.5 billion business in the US. Accord- ing to IBIS World, manufacturing mainly consists of blending, packaging, and bottling dry tea for specific brands (326 firms) with 656 RTD bottlers that specialize in tea and botanicals. For larger businesses, onshoring often eases logistics, sales, and distribution concerns. Relocating operations to the US could significantly reduce trade friction but not ease tensions globally. Trump's Trade Wars Reciprocal tariffs are unusual in scope and scale. Tariffs the US imposed in April are not based on reciprocity. The calculations are based on bilateral trade deficits. * For the first time, the US has imposed tariffs on every trading partner, regardless of the goods they produce, and chosen to punish specific countries for perceived injustices associated with the bal- ance of trade, political animosity, or retaliation for pushback. Expect Further Escalation The result is the resumption of "trade wars" that will reshape global trade rules codified by the World Trade Organization. The current US trade war with China began in 2018 and resulted in tariffs on $550 billion in Chinese goods. China retaliated with tariffs on $185 billion in US goods. A 10% tariff was imposed on Chinese tea im- ports, effective September 1, 2019. In 1930, the United States imposed tariffs on 20,000 imported goods, triggering retaliation from major trade partners, including Canada, France, and the United Kingdom. US exports declined from $5.2 billion in 1929 to $2 billion (1932), and 100,000 jobs were lost in the export industries alone. Twenty-five countries retaliated. Trade volumes globally collapsed by 60% between 1929 and 1933, inten- sifying and prolonging the Great Depression. Smoot-Hawley tariffs led to the largest global trade decline pre-WWII. Geopolitical disputes, retaliatory measures, and trade warfare disrupt established trade relationships, sometimes for decades.

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