Overview

The Tea Act of 1773, and the subsequent Boston Tea Party, arose from two issues confronting the British Empire in 1775: first, the financial problems of the British East India Company, and second, an ongoing dispute about the extent of Parliament's authority, if any, over the British American colonies without seating any elected representation. Parliament attempted to resolve these issues through the Tea Act, which in turn set the stage for the Boston Tea Party and eventually the American Revolution.

Background: Tea Trade to 1767

As Europeans developed a taste for tea in the 17th century, rival companies were formed to import the product from China. In England, Parliament gave the East India Company a monopoly on the importation of tea in 1698. 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. 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. Until 1767, the East India Company paid a tax of about 25% on tea that it imported into Great Britain. Parliament laid additional taxes on tea sold for consumption in Britain.

In response to the colonial protests over the Townshend Acts, Parliament repealed the majority of the Townshend taxes in 1770. However, they did not repeal the duty on tea, which Prime Minister Lord North kept in order to assert Britain's right of taxing the colonies. This partial repeal of the taxes was enough to bring an end to the non-importation movement, which colonists were using to boycott British goods, by October 1770. 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. Boston was the largest colonial importer of legal tea; smugglers still dominated the market in New York and Philadelphia.

The Tea Act of 1773

The Indemnity Act of 1767, which gave the East India Company a refund of the duty on tea that was re-exported to the colonies, expired in 1772. Parliament passed a new act in 1772 that reduced this refund, effectively leaving a 10% duty on tea imported into Britain. The act also restored the tea taxes within Britain that had been repealed in 1767, and left in place the 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. 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.

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. More importantly, the tax collected from the Townshend duty was used to pay the salaries of some British colonial governors and judges. 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.

The North ministry's solution was the Tea Act, which received the assent of King George in May of 1773. This act restored the East India Company's full refund on the 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. 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 of 1773, tea consignees were selected in New York, Philadelphia, Boston, and Charleston.

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. However, 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.

Lord North

Lord North, seen here in Portrait of Frederick North, Lord North (1773–1774), painted by Nathaniel Dance, was prime minister at the time of the passage of the Tea Act.