The Crisis of 1772 had also set…

1773 CE

The Crisis of 1772 had also set off a chain of events related to the controversy over the colonial tea market.

The East India Company is one of the firms that had suffered the hardest hits in the crisis.

Failing to pay or renew its loan from the Bank of England, the firm had sought to sell its eighteen million pounds of tea from its British warehouses to the American colonies.

In the 1760s and early 1770s, the 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 specializing 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, had 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 kilograms) 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 is more appealing in taste, some Patriots, like the Sons of Liberty, had encouraged the consumption of smuggled tea as a political protest against the Townshend taxes.

In 1770 most of the Townshend taxes had been repealed, but taxes on tea are retained.

Resistance to this tax includes 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 1773 the Company is close to collapse due in part to contractual payments to the British government of £400,000 per year, together with war and a severe famine in Bengal which has drastically reduced the Company's revenue from India, and economic weakness in European markets.

Benjamin Franklin is one of several people who suggest 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 sees an opportunity to 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 legitimizing Parliament's ability to tax the colonies.

The Tea Act, which receives the royal assent on May 10, 1773 reduces the tea price and enables the East India Company’s monopoly over the local tea business in the colonial tea market.

Proposals are made that the Townshend tax also be waived, but North opposes this idea, citing the fact that these revenues are used to pay the salaries of crown officials in the colonies.

The Parliament imposes a three pence tax for each pound of tea sold, and allows the firm to sell directly through its own agents.

Citizens in Charleston, Philadelphia, New York, and Boston, furious about how the British government and the East India Company control the colonial tea trade, reject the imported tea, and these protests eventually lead to the Boston Tea Party in 1773.