The Chicken Tax Origins and Impact

The Chicken Tax  is a 25% trade tariff (tax) originally imposed on brandy, dextrin, potato starch, and light trucks imported into the United States from other countries. Intended to restrict the importation of those goods, the Chicken Tax was imposed by President Lyndon Johnson in 1963 as a response to a similar tariff placed by West Germany and France on chicken meat imported from the United States. Key Takeaways The â€Å"Chicken Tax† is a 25% tariff (tax) imposed on foreign-made light trucks and vans imported into the United States.The Chicken Tax was imposed by President Lyndon Johnson in 1963.The Chicken Tax was a response to a similar tariff imposed by West Germany and France on chicken meat imported from the United States.The Chicken Tax is intended to protect the U.S, automakers from foreign competition.Cold War tensions thwarted diplomatic attempts to prevent the Chicken Tax.Major automakers have used loopholes to circumvent the Chicken Tax. While the Chicken Tax tariff on brandy, dextrin, and potato starch was lifted years ago, the tariff on imported light trucks and cargo vans remains in place in an effort to protect U.S. automakers from foreign competition. As a result, major automakers have devised imaginative methods to circumvent the tax. Origins of the  Chicken War With fears of atomic Armageddon from the Cuban Missile Crisis of 1962 still at a fever pitch, the negotiations and diplomacy of the â€Å"Chicken War† played out during the height of worldwide Cold War tensions. The history of the Chicken Tax  began in the late 1950s. With the agricultural production of many European countries still recovering from World War II, chicken was scarce and expensive, especially in Germany. At the same time, in the United States, a rapid post-War development of new industrial farming methods led to a huge increase chicken production. With availability at an all-time high, the price of chicken in U.S. markets dropped to near all-time lows. Once considered a delicacy, chicken became a staple of the American diet, with enough left over to allow excess U.S. chicken be exported to Europe. U.S. producers were eager to export chicken, and European consumers were eager to buy it. Time Magazine  reported that during 1961, consumption of U.S. chicken in West Germany alone had increased by 23 percent. When European governments began to accuse the U.S. of trying to force their local chicken producers out of business by cornering the market for the meat, the â€Å"Chicken War† began. The Creation of the Chicken Tax In late 1961, Germany and France, among other European countries, imposed stiff tariffs and price controls on chicken imported from the United States. By early 1962, U.S. chicken producers complained that their sales were dropping by at least 25% because of the European tariffs. Throughout 1963, diplomats from the U.S. and Europe tried, but failed, to reach a chicken trade agreement. Inevitably, the festering animosities and fears of the Cold War began to influence the politics of chicken. At one point, highly-respected Senator William Fullbright interjected an impassioned address about â€Å"trade sanctions on U.S. chicken† during a NATO debate on nuclear disarmament, finally threatening to withdraw U.S. troop support from NATO nations over the issue. In his memoirs, German Chancellor Konrad Adenauer recalled that half of his Cold War correspondence with U.S. President John F. Kennedy had been about chicken, rather than a potential nuclear holocaust. In January 1964, after Chicken War diplomacy failed, President Johnson imposed a 25% tariff — almost 10 times higher than the average U.S. tariff — on chicken. And, thus, the Chicken Tax was born. Enter the U.S. Auto Industry At the same time, the U.S. auto industry was suffering its own trade crisis due to competition from growingly popular foreign cars and trucks. During the early 1960s, sales of Volkswagens surged as America’s love affair with the iconic VW â€Å"Bug† coupe and Type 2 van shifted into overdrive. By 1963, the situation got so bad that Walter Reuther, president of the United Automobile Workers Union (U.A.W.), threatened a strike that would have halted all U.S. auto production just before the 1964 presidential election. Running for reelection and aware of the influence the U.A.W. had in Congress and in the minds of voters, President Johnson looked for a way to persuade Reuther’s union not to strike and to support his â€Å"Great Society† civil rights agenda. Johnson succeeded on both counts by agreeing to include light trucks in the Chicken Tax. While U.S. tariffs on other Chicken Tax items have since been rescinded, lobbying efforts by the U.A.W. have kept the tariff on light trucks and utility vans alive. As a result, American-made trucks still dominate sales in the U.S., and some very desirable trucks, like the high-end Australian-made Volkswagen Amorak,  are not sold in the United States. Driving Around the Chicken Tax Even in international trade, where there’s a will — and a profit — there’s a way. Major  automakers have used loopholes in the Chicken Tax law to circumvent the tariff. In 1972, Ford and Chevrolet — two of the main American automakers the Chicken Tax was intended to protect — discovered the so-called â€Å"chassis cab† loophole. This loophole  allowed foreign-made light trucks equipped with a passenger compartment, but without a cargo bed or box, to be exported to the U.S. with a 4% tariff, rather than the full 25% tariff. Once in the United States, the cargo bed or box could be installed so tha the finished vehicle sold as a light truck. Until President Jimmy Carter closed the â€Å"chassis cab† loophole in 1980, Ford and Chevrolet used the loophole to import their popular Japanese-made Courier and LUV compact pickup trucks. Today, Ford imports its  Transit Connect vans, which are built in Turkey, into the U.S. The vans arrive fully configured with rear seats as â€Å"passenger vehicles,† which are not subject to the tariff. Once at a Ford warehouse outside Baltimore, Maryland, the rear seats and other interior parts are stripped and the vans can be shipped out as cargo delivery vans to Ford dealers in the U.S. In another example, German automaker Mercedes-Benz ships all the unassembled parts of its Sprinter utility vans to a small â€Å"kit assembly building† in South Carolina where American workers, employed by Charleston, SC Mercedes-Benz Vans, LLC, reassemble the parts, thus producing vans â€Å"made in America.†Ã‚   President Trump Praises the Chicken Tax On November 28, 2018, President Donald Trump, embroiled in his own trade war with China, alluded to the Chicken Tax suggesting that if similar tariffs had been placed on more foreign-made vehicles, American automobile giant General Motors would not have needed to close plants in the United States. â€Å"The reason that the small truck business in the US is such a go to favorite is that, for many years, Tariffs of 25% have been put on small trucks coming into our country,† Trump tweeted. â€Å"It is called the chicken tax. If we did that with cars coming in, many more cars would be built here [...] and G.M. would not be closing their plants in Ohio, Michigan Maryland. Get smart Congress. Also, the countries that send us cars have taken advantage of the U.S. for decades. The President has great power on this issue - Because of the G.M. event, it is being studied now!† The president’s tweet came after GM announced plans this week to cut 14,000 jobs and shut five facilities in North America. GM said the cuts were needed to prepare the company for a future of driverless and electric vehicles, and in response to a consumer preference shift away from sedans in favor of trucks and SUVs.