The Origins of the ‘Chicken Tax’
In 1963, President Lyndon Johnson imposed a 25% tariff on imported trucks, known as the ‘chicken tax,’ in response to European tariffs on American chicken. This move was primarily aimed at German automaker Volkswagen, which was gaining traction in the US market. The tariff effectively blocked foreign automakers from selling pickup trucks in the US, creating a protected market for domestic manufacturers.
Consequences of Protectionism
The chicken tax has had far-reaching consequences. It allowed US automakers to raise truck prices by 5-6% annually, compared to 2% for cars. This led to increased profits for the Big Three automakers (General Motors, Ford, and Chrysler) and influenced their production focus towards trucks. Consumers, however, faced higher prices and limited choices. The tariff also spurred ‘tariff engineering,’ with manufacturers finding ways to circumvent the tax by shipping trucks without beds or adding extra seats to classify them as passenger vehicles.
Impact on the US Automotive Market
The chicken tax has survived multiple global trade agreements, including the creation of the World Trade Organization in 1995. Its longevity demonstrates how tariffs can reshape markets and create lasting constituencies. While the Big Three still dominate truck sales, their overall US market share has declined over the past 60 years. Foreign automakers have focused on the car market, particularly economy cars, due to the high tariff on pickup trucks.
Lessons for Trump’s Trade Policies
Economists warn that Trump’s tariffs could have similar long-lasting effects on the US economy. Dan Ikenson, an economist at the Cato Institute, notes that tariffs create economic incentives that can lead to the development of powerful constituencies, making them difficult to reverse. Jonathan Smoke, chief economist at Cox Automotive, cautions that undoing tariffs is never simple and can lead to unintended consequences, such as higher car prices and job losses in the auto industry.
The Future of Tariffs in the US
As the US navigates its current trade war, understanding the historical context of the chicken tax is crucial. While it may have protected US automakers in the short term, it has also limited consumer choice and influenced market dynamics. The challenge for policymakers is to balance protectionism with free trade principles, considering the potential long-term consequences of their decisions on the US economy and global markets.
