Tea Act - Background

Background

In the 1760s and early 1770s, the East India Company had been required to sell its tea exclusively in London on which it paid a duty which averaged two shillings and six pence per pound. Tea destined for the North American colonies would be purchased by merchants specialising in that trade, who transported it to North America for eventual retail sale. The markups imposed by these merchants, combined with tea tax imposed by the Townshend Acts of 1767 created a profitable opportunity for American merchants to import and distribute tea purchased from the Dutch in transactions and shipments that violated the Navigation Acts and were treated by British authorities as smuggling. Smugglers imported some 900,000 pounds (410,000 kg) of cheap foreign tea per year. The quality of the smuggled tea did not match the quality of the dutiable East India Company tea, of which the Americans bought 562,000 pounds (255,000 kg) per year. Although the British tea was more appealing in taste, some Patriots encouraged the consumption of smuggled tea as a political protest of the Townshend taxes.

In 1770 most of the Townshend taxes were repealed, but that on tea was retained. Resistance to this tax included pressure to avoid legally imported tea, leading to a drop in colonial demand for the Company's tea, and a burgeoning surplus of the tea in the company's English warehouses. By 1774 the Company was close to collapse due in part to contractual payments to the British government of £400,000 per year, together with war and famine in India, and economic weakness in European markets. Benjamin Franklin was one of several people who suggested things would be greatly improved if the Company were allowed to export its tea directly to the colonies without paying the taxes it was paying in London: "to export such tea to any of the British colonies or plantations in America, or to foreign parts, import duty of three pence a pound."

The administration of Lord North saw an opportunity achieve several goals with a single bill. If the Company were permitted to directly ship tea to the colonies, this would remove the markups of the middlemen from the cost of its tea, and reducing or eliminating the duties paid when the tea was landed in Britain (if it was shipped onward to the colonies) would further reduce the final cost of tea in the colonies, undercutting the prices charged for smuggled tea. Colonists would willingly pay for cheaper Company tea, on which the Townshend tax was still collected, thus legitimising Parliament's ability to tax the colonies.