A Tax on Tea

From reform to revolt

A Tax on Tea

May 10th is a big day in the history of the American Revolution:

On May 10, 1773, Parliament passed the Tea Act, igniting protests up and down the colonies, and then on the very same day just two years later, Ethan Allen and Benedict Arnold captured Fort Ticonderoga, while the Second Continental Congress met in Philadelphia to take over the war effort. And on May 10th the following year, the Continental Congress passed “A Resolution for the Formation of Local Governments,” which instructed the colonies to establish new governments at the end of hostilities with Britain, setting the stage for the Declaration of Independence.

At first glance, the infamous Tea Act set everything into motion—the final straw, a point of no return. And there is some truth to this. Ironically, Parliament’s deliberations over the Tea Act went largely unnoticed in the colonies. This is because most colonists believed the much-hated tea duty, which had survived the 1770 repeal of the Townshend Acts, would be revoked. But the colonists were largely unaware of the global interests at stake and Parliament’s need to reassert its sovereignty.

Boycotts, Bailouts, and Too Big To Fail

By the end of 1770, Parliament was preoccupied with India, where the East India Company was reaping untold riches and carving up the old Mughal empire. Corruption and mismanagement had become serious problems, inviting censure from Parliament and King George, and so by 1772, the Ministry was convinced that the government needed to take control of the East India Company and its holdings.

Founded in 1600, the East India Company was a joint-stock company with a charter granting it exclusive trading rights with all countries east of the Cape of Good Hope and west of the Straits of Magellan. Any Englishman trading in these regions without a Company license risked imprisonment and having their ships and cargo confiscated. In exchange for its monopoly rights, the Company was required to ship all tea to the mother country, pay heavy import duties, and sell the tea to British merchants at public auction.

Despite humble beginnings as a plucky upstart in the global spice trade, the East India Company had expanded rapidly during the 18th century, and soon found itself in control of Bengal—India’s richest province—where it oversaw local administration and a sprawling network of factories and tax farms. But the Company’s dizzying success had created several problems.

Firstly, there was the Company’s culture of corruption and abuse that, with the Great Bengal Famine in 1770, became impossible for the Ministry to ignore. Second, excessive speculative trading and the overvaluation of Company stock wiped out banks and spurred a credit crisis, sending tremors throughout the Empire. Finally, heavy import and inland duties on Company tea produced demand for cheaper alternatives, giving rise to smuggling and a thriving black market, which eventually pushed the East India Company to the verge of bankruptcy.

The smuggling of tea became such a problem that, according to Merrill Jensen, by the 1760s, an estimated 7,000,000 pounds of Dutch tea was being secreted into Britain every year. Such operations ranged from the unsophisticated and mundane to the utterly ruthless. Company officers returning from India would often transport tea in their private luggage to sell to smugglers along the English coast, while criminal organizations purchased whole ships, outfitted with guns and secret hideaways, to smuggle and distribute the tea through vast underground networks.

The most notorious of these organizations was the Hawkhurst Gang of Kent, whose constant clashes with the law finally ended after a successful raid on a Custom House in Poole, where the gang made off with almost 3,360 lbs. of tea. But shortly after the heist, a local militia discovered the culprits, and after a bloody battle, captured and executed the ringleaders.

To combat smuggling, rescue the East India Company, and increase revenue, Parliament passed the Townshend Duties, five reform acts (Revenue Act, Commissioners of Customs Act, Indemnity Act, New York Restraining Act, and the Vice Admiralty Court Act) designed to get the Company back on its feet and stabilize the Empire. One such measure, the Indemnity Act, reduced inland duties on tea sold in Britain, doubling demand for English tea overnight and allowing the re-export of tea to the colonies at a more competitive price. Everything seemed to be working as planned in Britain, but the mood was vastly different in America.

Thanks to the Indemnity Act, the Townshend Duties reduced the overall price of English tea, but the Revenue Act, passed just days before, imposed a threepence a pound duty on all tea imported by the Americans. This, along with additional taxes on glass, lead, paint, and paper, outraged the colonists and brought back memories of the dreaded Stamp Act, which had divided Parliament and forced an embarrassing repeal.

But what angered the colonists most were the Townshend Duties’ administrative reforms. To crackdown on smuggling and ensure that perpetrators were properly punished, Parliament handpicked customs officials and granted the supreme court of each colony the power to issue special “writs of assistance” for searching private property and making arrests. It also established a new Customs Board to enforce shipping regulations and gave maritime courts authority over all smuggling and customs violations in the colonies. In the past, such responsibilities were managed locally, and enforcement was rare.

Like the Stamp Act, the Townshend Duties united the colonies against Parliament. Opposition flared in colonial legislatures, town halls, and taverns, and the violent rioting that had followed the Stamp Act seemed ready to return. The more erudite complained about constitutional issues, and merchants and artisans decried the economic burden, while the Sons of Liberty, who had vigorously protested the Stamp Act under the banner of “NO TAXATION WITHOUT REPRESENTATION,” organized boycotts, harassed customs officials, and aided and abetted smugglers.

Smuggling was rampant in the colonies, with approximately 85% of all tea in America illicitly sourced from the Dutch. Even the most prominent merchants—men like John Hancock—proudly owed their fortunes to the practice, and they made sure that smugglers remained unmolested by local officials or received light sentences.

But in 1768, newly appointed customs officials seized one of Hancock’s ships, the Liberty, and unrest exploded in Boston. Organized by the Sons of Liberty, mobs formed and began attacking customs officers. The Custom House in Boston was ransacked, and its officials chased through the streets. The violence only stopped after the arrival of a platoon of British soldiers.

The reaction to the Townshend Duties was so fierce that Parliament began to slowly repeal them, until by 1770, nearly all the new taxes were lifted—all except the import duty on tea, which Prime Minister North considered an important symbol of Parliament’s sovereignty.

Notwithstanding all the violence and unrest in the colonies, the most devastating act of resistance was the boycotts, which revived smuggling and created an enormous surplus of British tea. As Jensen notes, by the end of 1772, the East India Company had approximately 18,000,000 pounds of unsold tea in its possession, along with reduced demand, a plummeting stock price, no cash on hand, and a growing public outcry over its behavior in Bengal.

The East India Company was, once again, on the verge of bankruptcy, and so when it requested a bailout that following year, the Ministry seized on the chance to bring the Company and its holdings under government control once and for all.

To reform the East India Company and manage its affairs, Parliament passed the Regulating Act, which gave the government power to overhaul the Company’s management, regulate its operations in India, and impose strict limits on dividends. These measures were protested by shareholders and lobbyists, as well as by some in Parliament, who decried the assault on “sacred charter rights.” But in the end the act prevailed.

Amid the debates, some in Parliament warned Lord North that unless the remaining tea duty from the Townshend Acts was repealed, the new reforms would do little to help the East India Company in the Americas, as the colonists would simply continue to rely on smuggled tea or refuse to drink British tea altogether. But Lord North dismissed these concerns, reminding his peers of the importance of retaining that great symbol of Parliament’s sovereignty—the tax on tea.

As shocking as it may seem in hindsight, the colonists barely paid attention to these deliberations. Everyone, from Benjamin Franklin to John Adams, predicted an eventual repeal of the tea duty. The East India Company was struggling to remain solvent, the colonists had displayed an extraordinary talent for smuggling, and every other attempt to impose new taxes had failed.

But on May 10, 1773, Parliament proved Franklin and Adams wrong and passed the Tea Act, which not only allowed the Company to bypass taxes in Britain and directly export tea to the colonies, thereby lowering the overall price of goods, but it established a special class of tea agents and removed the longstanding provision for sales at public auction, effectively undercutting smugglers and eliminating markups from middlemen.

Once again there was an outpouring of venomous rage in the colonies, but this time there was greater unity and coordination.

For one thing, the East India Company’s corruption and insolvency were well known, and despite its centuries-long monopoly rights, the colonists still retained a deep distrust for monopolies, believing them to be antithetical to liberty. Furthermore, the idea that freeborn Englishmen would be taxed, without representation no less, to save a scandal-ridden government company, was simply outrageous. And for some, the only logical explanation was that the Company, backed by a corrupt Parliament and Ministry, hoped to subjugate the colonists like it had the population of Bengal, reducing free people to a state of vassalage.

The Tea Act also had the effect of uniting disparate interests under a single banner: mechanics, planters, merchants, and smugglers—all uniquely affected economically, but their liberties “equally affected.” In principle, the Tea Act seemed to validate the hated Townshend Duties, while financially, merchants and smugglers alike faced ruin. The combination of interests hardened the opposition throughout the colonies, giving rise to new committees of correspondence, fiery broadsides in local papers, and acts of civil disobedience. From Charleston to Philadelphia, tea was either sent back to Britain or left to rot on the docks, while in Boston, the Sons of Liberty planned more symbolic acts of defiance.

In the end, symbolism was the greatest unifier of all. Just as Lord North regarded the tea duty as an emblem of Parliament’s sovereignty, tea had even greater symbolic power to the colonists, who viewed it as the penultimate sign of corruption and conspiracy—an explicit threat to their sovereignty as one free people.

Other taxes or regulations could be tolerated and ignored, but not the tax on tea.

And the rest is history.