The Chicken TaxPosted by: Xavier Kwan onDecember 6th, 2016
Politics and sound reasoning has time and again over history proven itself to be quite the oxymoron when used in the same sentence. No more so than now with Trump being elected in as the next US President. However, this story isn’t about Trump, rather, it is a retrospect on politics and its downstream impacts on society which brings us to the Chicken tax.
Fifty-three years ago, with political tensions rising at the height of the Cold War, United States imposed a 25 per cent tariff on imported brandy, dextrin, potato starch and small pickups in retaliation to tariffs on imported American chicken imposed by countries like France and Germany. Well, the Cold War is over, and 53 years after the tariff was imposed brandy, dextrin and potato starch no longer have a 25% tariff. However, light trucks did not didn’t get off easy. The tariff remains in place today to protect U.S. domestic automakers from foreign competition.
When the tariff was imposed by President Lyndon Johnson, an unintended situation arouse which highlights the protectionism of US automakers. Right before the 1964 elections, President Johnson approached Walter Reuther, United Auto Workers’ president, in an attempt to stop an imminent strike. In return for his support, Reuther demanded that President Johnson take actin to curtail Volkswagen’s increasing importation of their Type 2 pickups and it worked. Importation of small pickups by Volkswagens dwindled, and well kept vintage Type 2 pickups todays command top dollars in the US for their rarity.
However, many manufacturers only saw the tariff as an obstacle and took on the challenge to find loopholes in the importation regulations. Japanese manufacturers would import their light truck, minus the truck bed, and only be slapped with a 4% tariff. Those vehicles would be mated with their truck beds in the US and then sold officially as light trucks. The “cab-chassis” loophole was closed in 1980. Other manufacturers like Subaru installed an additional row of rearward facing seats in their truck beds which then allowed them to classify their light truck as a passenger vehicle.
However, no manufacturer can rival the measures taken to avoid the tariff as far as Mercedes Benz. For the past ten years, Mercedes has designed, engineered and assembled their vans in their German plant. To circumvent the tariff, Mercedes disassembles the van down, ships it piece by piece to their South Carolina plant in the US, and reassembles the vehicle to be sold as an American made vehicle. Volker Mornhinweg, worldwide head of Mercedes-Benz Vans, couldn’t believe what his division was doing to avoid the “chicken tax”. Mornhinweg said, “To build up and tear down, that’s really something that hurts me, personally. And the costs!” This loophole is clearly an extreme measure, so much so that Mercedes will be phasing out this manufacturing process and will instead open up a production plant in South Carolina for their vans.
Interestingly enough, this chicken tax also impacts US manufacturers. Remember the Ford Ranger? The Ranger was built at Ford’s Minnesota plant, that is until it got too expensive to manufacture the vehicle locally and still turn a profit. The Ranger is now built in Thailand, which means Ford won’t bring that truck back to North America for sales as it will be hit with the chicken tax. To complicate matters further, any imported vehicle that is not built within the NAFTA zone will get a 6.1% duty imposed.
Who knew that chicken would have such a great impact on our auto industry.