Tea trade to 1767

As Europeans developed a taste for tea in the 17th century, rival companies were formed to import the product from the East Indies.^[2] In England, Parliament gave the East India Company a monopoly on the importation of tea in 1698.^[3] When tea became popular in the British colonies, Parliament sought to eliminate foreign competition by passing an act in 1721 that required colonists to import their tea only from Great Britain.^[4] The East India Company did not export tea to the colonies; by law, the company was required to sell its tea wholesale at auctions in England. British firms bought this tea and exported it to the colonies, where they resold it to merchants in Boston, New York, Philadelphia, and Charleston.^[5]

Until 1767, the East India Company paid an ad valorem tax of about 25% on tea that it imported into Great Britain.^[6] Parliament laid additional taxes on tea sold for consumption in Britain. These high taxes, combined with the fact that tea imported into Holland was not taxed by the Dutch government, meant that Britons and British Americans could buy smuggled Dutch tea at much cheaper prices.^[7] The biggest market for illicit tea was England—by the 1760s the East India Company was losing £400,000 per year to smugglers in Great Britain^[8]—but Dutch tea was also smuggled into British America in significant quantities.^[9]

In 1767, to help the East India Company compete with smuggled Dutch tea, Parliament passed the Indemnity Act, which lowered the tax on tea consumed in Great Britain, and gave the East India Company a refund of the 25% duty on tea that was re-exported to the colonies.^[10] To help offset this loss of government revenue, Parliament also passed the Townshend Revenue Act of 1767, which levied new taxes, including one on tea, in the colonies.^[11] Instead of solving the smuggling problem, however, the Townshend duties renewed a controversy about Parliament's right to tax the colonies.

Townshend duty crisis

Controversy between Great Britain and the colonies arose in the 1760s when Parliament sought, for the first time, to directly tax the colonies for the purpose of raising revenue. Some colonists, known in the colonies as Whigs, objected to the new tax program, arguing that it was a violation of the British Constitution. Britons and British Americans agreed that, according to the constitution, British subjects could not be taxed without the consent of their elected representatives. In Great Britain, this meant that taxes could only be levied by Parliament. Colonists, however, did not elect members of Parliament, and so American Whigs argued that the colonies could not be taxed by that body. According to Whigs, colonists could only be taxed by their own colonial assemblies. Colonial protests resulted in the repeal of the Stamp Act in 1765, but in the 1766 Declaratory Act, Parliament continued to insist that it had the right to legislate for the colonies "in all cases whatsoever".

When new taxes were levied in the Townshend Revenue Act of 1767, Whig colonists again responded with protests and boycotts. Merchants organized a non-importation agreement, and many colonists pledged to abstain from drinking British tea, with activists in New England promoting alternatives, such as domestic Labrador tea.^[12] Smuggling continued apace, especially in New York and Philadelphia, where tea smuggling had always been more extensive than in Boston. Dutied British tea continued to be imported into Boston, however, especially by Richard Clarke and the sons of Massachusetts Governor Thomas Hutchinson, until pressure from Massachusetts Whigs compelled them to abide by the non-importation agreement.^[13]

Parliament finally responded to the protests by repealing the Townshend taxes in 1770, except for the tea duty, which Prime Minister Lord North kept to assert "the right of taxing the Americans".^[14] This partial repeal of the taxes was enough to bring an end to the non-importation movement by October 1770.^[15] From 1771 to 1773, British tea was once again imported into the colonies in significant amounts, with merchants paying the Townshend duty of three pence per pound.^[16] Boston was the largest colonial importer of legal tea; smugglers still dominated the market in New York and Philadelphia.^[17]

Tea Act 1773

The Indemnity Act of 1767, which gave the East India Company a refund of the 25% duty on tea that was re-exported to the colonies, expired in 1772. Parliament passed a new act in 1772 that reduced this refund to three-fifths of the 25% duty, which effectively left a 10% duty on tea imported into Britain.^[18] The act also restored the tea taxes within Britain that had been repealed in 1767, and left in place the three pence Townshend duty in the colonies. With this new tax burden driving up the price of British tea, sales plummeted. The company continued to import tea into Great Britain, however, amassing a huge surplus of product that no one would buy.^[19] For these and other reasons, by late 1772 the East India Company, one of Britain's most important commercial institutions, was in a serious financial crisis.^[20]

Eliminating some of the taxes was one obvious solution to the crisis. The East India Company initially sought to have the Townshend duty repealed, but the North ministry was unwilling because such an action might be interpreted as a retreat from Parliament's position that it had the right to tax the colonies.^[21] More importantly, the tax collected from the Townshend duty was used to pay the salaries of some colonial governors and judges.^[22] This was in fact the purpose of the Townshend tax: previously these officials had been paid by the colonial assemblies, but Parliament now paid their salaries to keep them dependent on the British government rather than allowing them to be accountable to the colonists.^[23]

Another possible solution for reducing the growing mound of tea in the East India Company warehouses was to sell it cheaply in Europe. This possibility was investigated, but it was determined that the tea would simply be smuggled back into Great Britain, where it would undersell the taxed product.^[24] The best market for the East India Company's surplus tea, so it seemed, was the American colonies, if a way could be found to make it cheaper than the smuggled Dutch tea.^[25]

The North ministry's solution was the Tea Act, which received the assent of King George on May 10, 1773.^[26] This act restored the East India Company's full refund on the 25% duty for importing tea into Britain, and also permitted the company, for the first time, to export tea to the colonies on its own account. This would allow the company to reduce costs by eliminating the middlemen who bought the tea at wholesale auctions in London.^[27] Instead of selling to middlemen, the company now appointed colonial merchants to receive the tea on consignment; the consignees would in turn sell the tea for a commission. In July 1773, tea consignees were selected in New York, Philadelphia, Boston, and Charleston.^[28]

The Tea Act retained the three pence Townshend duty on tea imported to the colonies. Some members of Parliament wanted to eliminate this tax, arguing that there was no reason to provoke another colonial controversy. Former Chancellor of the Exchequer William Dowdeswell, for example, warned Lord North that the Americans would not accept the tea if the Townshend duty remained.^[29] But North did not want to give up the revenue from the Townshend tax, primarily because it was used to pay the salaries of colonial officials; maintaining the right of taxing the Americans was a secondary concern.^[30] According to historian Benjamin Labaree, "A stubborn Lord North had unwittingly hammered a nail in the coffin of the old British Empire."^[31]

Even with the Townshend duty in effect, the Tea Act would allow the East India Company to sell tea more cheaply than before, undercutting the prices offered by smugglers. In 1772, legally imported Bohea, the most common variety of tea, sold for about 3 shillings (3s) per pound.^[32] After the Tea Act, colonial consignees would be able to sell it for 2 shillings per pound (2s), just under the smugglers' price of 2 shillings and 1 penny (2s 1d).^[33] Realizing that the payment of the Townshend duty was politically sensitive, the company hoped to conceal the tax by making arrangements to have it paid either in London once the tea was landed in the colonies, or have the consignees quietly pay the duties after the tea was sold. This effort to hide the tax from the colonists was unsuccessful.^[34]

Resisting the Tea Act

This 1775 British cartoon, "A Society of Patriotic Ladies at Edenton in North Carolina", satirizes the Edenton Tea Party, a group of women who organized a boycott of English tea.

In September and October 1773, seven ships carrying East India Company tea were sent to the colonies: four were bound for Boston, and one each for New York, Philadelphia, and Charleston.^[35] In the ships were more than 2,000 chests containing nearly 600,000 pounds of tea.^[36] Americans learned the details of the Tea Act while the ships were en route, and opposition began to mount.^[37] Whigs, sometimes calling themselves Sons of Liberty, began a campaign to raise awareness and to convince or compel the consignees to resign, in the same way that stamp distributors had been forced to resign in the 1765 Stamp Act crisis.^[38]

The protest movement that culminated with the Boston Tea Party was not a dispute about high taxes. The price of legally imported tea was actually reduced by the Tea Act of 1773. Protestors were instead concerned with a variety of other issues. The familiar "no taxation without representation" argument, along with the question of the extent of Parliament's authority in the colonies, remained prominent.^[39] Some regarded the purpose of the tax program—to make leading officials independent of colonial influence—as a dangerous infringement of colonial rights.^[40] This was especially true in Massachusetts, the only colony where the Townshend program had been fully implemented.^[41]

Colonial merchants, some of them smugglers, played a significant role in the protests. Because the Tea Act made legally imported tea cheaper, it threatened to put smugglers of Dutch tea out of business.^[42] Legitimate tea importers who had not been named as consignees by the East India Company were also threatened with financial ruin by the Tea Act.^[43] Another major concern for merchants was that the Tea Act gave the East India Company a monopoly on the tea trade, and it was feared that this government-created monopoly might be extended in the future to include other goods.^[44]

South of Boston, protestors successfully compelled the tea consignees to resign. In Charleston, the consignees had been forced to resign by early December, and the unclaimed tea was seized by customs officials.^[45] There were mass protest meetings in Philadelphia. Benjamin Rush urged his fellow countrymen to oppose the landing of the tea, because the cargo contained "the seeds of slavery".^[46] By early December, the Philadelphia consignees had resigned and the tea ship returned to England with its cargo following a confrontation with the ship's captain.^[47] The tea ship bound for New York City was delayed by bad weather; by the time it arrived, the consignees had resigned, and the ship returned to England with the tea.^[48]