Cars, Livestock, Trade Dispute?
Here's a fresh, original take on the "Chicken Tax" article:
Going Baaaack in Time: The Eternal Saga of the Chicken Tax
You might be surprised to learn that the "Chicken Tax" has nothing to do with poultry these days. Instead, it's a sneaky tariff meant for pickup trucks. And surprised or not, it shows just why President Donald Trump's tariffs could reshape the US economy for a baaaake amount of time.
President Lyndon Johnson put the Chicken Tax in place back in 1963. But let's be real – that chicken-related disagreement is long gone. The tariff outlived its original reason, proving how tariffs have a knack for reshaping global markets, sometimes for decades. You know what I mean, right? Trump's trade war could affect the way everyone in the States - and beyond - shops and spends for a lifetime.
As it stands now, the Chicken Tax basically blocks foreign automakers from selling pickup trucks made in Europe or Asia in America. Most pickups are made in North America, adding some major profits to the pockets of US automakers while leaving millions of American buyers with fewer options and higher prices. Yeah, it's a tough biscuit to swallow, right?
"Trump seems to think he can announce these super high tariffs and then just dial them back," said Dan Ikenson, a smart-cookie economist. "But tariffs change economic incentives. Constituencies develop and they take on a life of their own, and that's why they're long lived."
An Old War older than most Americans
The Chicken Tax got its start – no kidding – with chickens.
In 1962, European countries slapped tariffs on American chicken, effectively closing the American poultry market in Europe. Johnson retaliated by imposing tariffs on a bunch of European goods, including trucks. At that time, only a sliver of American car sales were imports, and most people still hadn't heard of the likes of Toyota or Honda.
This 25% whack on "motor vehicles for the transport of goods" was mainly meant to nail German automaker Volkswagen, the only foreign automaker making inroads into the US market at the time. European potato starch, dextrin, and brandy also had tariffs on them, but the American beneficiaries of those tariffs didn't carry as much political sway as the auto industry, according to Ikenson.
By blocking foreign competition, the Chicken Tax opened the door for America's Big Three automakers to boost their pickup truck prices. And even though American-built trucks weren't hit by the tariffs, their prices still skyrocketed by about 5-6% each year, while car prices crept up only 2% year over year.
"It's crazy how the increased costs created a market where American-made pickup trucks became status symbols, while European trucks remained non-existent on American roads," said Jonathan Smoke, a smart-cook economist over at Cox Automotive.
Even though the EU dropped the tax on American chicken in 1964, the Big Three automakers and the auto workers union joined forces to keep the imports on foreign trucks in place. "It was never challenged or questioned politically," said Smoke.
It's safe to say that few truck buyers realized they were coughing up extra dough because of the Chicken Tax. And seeing as it helped spur American production, "the average American would say it wasn't a bad thing," added Smoke.
The Chicken Tax even survived numerous rounds of global trade agreements aimed at promoting freedom in the markets. But once tariffs are in place, they're like a stubborn old dog that won't budge, says Lawrence Friedman, a pro trainer in global trade law. For example, there are still tariffs on TVs with cathode ray tubes and ones with built-in VCR players, dating back to a time when those were the big happenings.
Curbing the Trickery
With trade restrictions comes some shrewd workarounds.
Foreign automakers found ways to circumvent the Chicken Tax, like shipping trucks to the States without the beds attached to the chassis, adding extra seats, or simply labeling their trucks as passenger vehicles. The Subaru BRAT, for example, added rear-facing seats to its truck bed. It wasn't only the foreign automakers who played games to avoid the Chicken Tax, either. Ford, which was building the Transit Connect van in Europe, shipped them to the US with extra seats that would be removed once they cleared customs.
But with the 1994 North American Free Trade Agreement, or NAFTA, some legal wiggle room opened up.
NAFTA allowed automakers to build trucks in Canada and Mexico, which meant that some production shifted from the States to our neighbors to the north and south. For example, General Motors builds its best-selling truck, the Silverado, in Canada, Mexico, and the US.
Swapping Pickups for Compacts
With pickup imports taxed, many Asian and European automakers focused on a different (less taxed) niche: compact cars. Especially fuel-efficient ones that became popular as gas prices started rising in the 1970s.
The timing was perfect for foreign makers. When they began building US plants, they mainly focused on producing cars, not trucks. But it wasn't because of the Chicken Tax. It was because it was cheaper to build closer to where the cars would be sold.
"The tariff didn't play a significant role in drawing foreign direct investment to the US," said Ikenson. "There was already a ton of investment coming in to produce cars, and the Chicken Tax was only a 2.5% tariff on them."
Even with the combination of shutting out foreign pickups and Americans' love of trucks, the Big Three's market share still shrank over the last 60 years.
By 2007, Asian and European brands captured a massive chunk of US combined car and truck sales for the first time, over the traditional Big Three automakers for the first time.
Yeah, it might be tough to predict how Trump's tariffs will shake up the market, and how long they'll stick around. But one thing's for sure: even though the Chicken Tax raises prices and costs auto jobs, people will still support this ol' tariff – it's the one example of tariff that people won't forget.
"If I were a betting man, I wouldn't be surprised if this one example of tariff that Americans end up backing," said Smoke.
Insights:
- The Chicken Tax is a 25% tariff imposed by the United States on certain imported goods, including light trucks and vans.
- Intended as a temporary measure, the tax has remained in effect since 1963 due to sustained lobbying by domestic automakers to protect themselves from foreign competition.
- The Chicken Tax's impact on the U.S. automobile industry includes protecting domestic manufacturers, limiting foreign competition, raising prices for consumers, discouraging competition-driven innovation, and limiting consumer choices.
- European tariffs on American poultry sparked the Chicken Tax, but the agricultural dispute ended in 1964, while the Chicken Tax remains in effect.
- The Chicken Tax distorts global trade flows in vehicles and complicates manufacturing and logistics for foreign automakers who want to export to the U.S. market, while some foreign automakers have developed strategies to circumnavigate the tax, such as shipping trucks without attached beds or adding extra seats to be classified as passenger vehicles.
- In 2024, the implications of President Trump's tariffs could supposedly reshape the US economy as dramatically as the "Chicken Tax" has, with long-lasting effects on shopping and spending patterns.
- The technology of foreign automakers has found creative workarounds to bypass the Chicken Tax, such as shipping trucks without attached beds or labeling their vehicles as passenger cars.
- WhenDan Ikensonremembers the Chicken Tax's inception in 1963, he laughingly recalls that it was initially put in place due to a poultry-related trade dispute, although the tariff has outlived its original reason and continues to affect the business sector, particularly the poultry and automotive industries.
