Why You Can Get Some (Not All) Pickups: The 'Chicken Tax' (F, GM)
While there were plenty of flashy new models on display at the annual North American International Auto Show, what really had people talking is a decades-old tariff that seemingly has nothing to do with vehicles.
You probably never heard of the “chicken tax.”
What Is the Chicken Tax?
The non-automotive-nomenclature-tax is an almost-54-year-old tariff imposed during the Johnson Administration. In the 1960s, several European countries imposed a tax on chickens imported from the U.S. In response, President Johnson developed a tariff of his own covering potato starch, brandy valued at over $9 a gallon and trucks valued at $1,000 or more.
The move was largely directed at what was then West Germany, which was a center of production for Volkswagen trucks and similar utility vehicles. The tariff essentially increased the cost of importing foreign-manufactured trucks by 25%. The result is that, for half a century, the U.S. truck market has been dominated by the likes of Ford (F), General Motors (GM) and Chrysler (now Fiat Chrysler Automobiles – FCAU), dubbed "The Big Three".
Companies like Honda (HMC) have attempted to create a work-around for the tax by getting into the truck manufacturing game on U.S. soil. Production for its 2017 Ridgeline model, which recently won North American Truck of the Year at the Detroit Auto Show, was manufactured at its processing plant headquartered in Lincoln, Ala. Nissan (NSANY) has followed suit, with production of its Titan line of trucks based in Canton, Miss. Despite those efforts, American truck buyers still face a limited selection when shopping for full- and mid-sized trucks. (See also: Nissan Tops Honda for Fastest Growth in the U.S.)
The Future of the Chicken Tax
The upcoming inauguration of President-elect Trump is what’s driving the renewed chatter surrounding the chicken tax. Since the election, Trump has renewed calls to curb the outsourcing of manufacturing jobs overseas. In December, he reportedly said that he would penalize American businesses with a 35% tax if they moved operations overseas and then tried to sell their products in the U.S. For more on this issue, read about the border adjustment tax.
While Trump hasn’t commented specifically on repealing the tax, the measures he’s proposed regarding outsourcing have prompted some auto execs to put the spotlight back on the chicken tax. Many have argued that a repeal of the tax could boost vehicle sales as supply would be able to increase to meet demand.
For now, the chicken tax remains in place and a potential light at the end of the tunnel has dimmed considerably. The Trans-Pacific Partnership (TPP) trade deal, initially signed by 12 countries including the U.S. in February 2016, features a provision that would roll back the tax over a period of years before finally eliminating it completely. Following the election, however, President Trump said he would pull the U.S. out of the TPP so it remains to be seen whether the chicken tax will eventually end up on the chopping block.