There’s a reason why you’ll pay up to $60,000 for a Ford F-150, a pickup truck that’s not much different than 20 years ago except for the trim and tech packages. American pickup trucks are overpriced and bloated. It once had something to do with chickens, but now it’s got a lot to do with soon-to-be President Trump’s threats to German automakers.
“If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the USA, you will pay 35 percent tax,” Trump said in remarks translated into German.
Stupid, stupid, stupid.
We already know this will fail, because we’ve been doing it for 54 years. Trump wants to extend the existing “Chicken Tax” from light trucks to cars. It will ultimately stifle competition, raise prices, and cost jobs, just like it has with pickup trucks.
The “Chicken Tax” was enacted in 1963 to punish Europeans, who restricted American chicken imports and accused the U.S. of “dumping” the birds on Europe below cost. This caused a 25 percent drop for American chicken exporters, who appealed to the government to help them. The result was a 25 percent tariff on potato starch, brandy, dextrose and light trucks.
The light trucks part was added by President Johnson to punish the (then-West) Germans who were selling VW vans in America. The problem with adding tariffs is that industries become addicted to them, and they never get repealed.
Most of the tariffs, which came to be known as the “Chicken Tax,” eventually were repealed. Yet the one on light trucks remains. The 25 percent tax on the importation of light trucks (LBJ was specifically targeting German-built Volkswagen vans), utterly failed at protecting the US chicken market, yet remains in place more than 50 years later. The CATO Institute calls it “a textbook example of a ‘temporary’ government policy that has taken on a life of its own.”
Johnson’s “Chicken Tax” did nothing to help American chicken exporters. Today it’s not really helping the U.S. light truck market, other than inflating the prices. Consumers don’t know the prices are inflated because there hasn’t been any real competition in that market in decades.
Toyota, Nissan and Honda build and sell pickups here, but their most popular worldwide models are not sold in America. If the “Chicken Tax” were repealed, we’d see better, cheaper pickup trucks, and ultimately, more jobs for Americans.
Trump’s proposed 35 percent tariff on German cars (and presumably Japanese, Chinese and others) will do nothing to help American carmakers. All it will do is further distort the market, in which manufacturers already jump through ridiculous hoops to avoid the current tariffs.
For example, Ford, one of the companies the Chicken Tax did the most to protect, is a much more global company today. That means this American company sometimes builds trucks overseas and brings them back into the US, as they do with their Transit Connect van, which is built in Turkey. To get around the Chicken Tax, it comes to the US with seats and windows, both of which are removed upon entry. It’s wasteful and crazy.
The days when an automaker simply makes a car from stem to stern (pardon the nautical metaphor) in one factory, or one city, are simply gone. BMW makes their X-series crossover SUV’s in Spartanburg, South Carolina. After a $1 billion investment in 2014, the Spartanburg facility is the company’s largest plant, with production second only to Dingolfing, Germany. A full 70 percent of the vehicles produced in S.C. are exported.
Volkswagen added about 700 employees at its Chattanooga, Tenn. plant in the last half of 2016.
VW is spending $900 million, including $600 million in Tennessee, to expand its Chattanooga factory to make its new SUV. The company has said it plans to ultimately hire 2,000 more employees to its workforce of about 2,500.
I haven’t even started on the Japanese automakers. The number 1 American-made automobile is the Toyota Camry, produced in Georgetown, Kentucky. The top 5 cars on the cars.com American-Made Index for 2016 are made by Japanese manufacturers.
Protective tariffs were stupid in 1963, and they’re stupid in 2017. If Trump wants to save American jobs, and bring more good-paying jobs into the country, the best option is not to expand the “Chicken Tax” but to repeal it completely. Let the Germans, Japanese, and Koreans build and sell here, because we’ve got the number 2 largest market on the planet for cars and trucks.
Who cares if the motors are built in Korea? Foreign automakers are pouring money into U.S. plants. They’re saying it’s to avoid Trump’s tariffs, but in reality, they’d build here anyway because of competition.
Hyundai Motor Co. and affiliate Kia Motors Corp. said they will spend $3.1 billion in the U.S. in the next five years, joining other vehicle manufacturers in announcing investment plans amid threats from President-elect Donald Trump of higher levies on auto imports from Mexico.
I’m hoping the entire tariff thing is a bluff, a feint. It’s great to see all the investment (which I think they’d make anyway, but they’re giving Trump credit in hopes of later deals in taxes and labor). But if Trump goes through with this boneheaded tariff idea, that capital will flee our shores just as fast as it poured in.
There are less expensive markets to penetrate. Trump’s protective tariffs will just make America the world’s cash cow, not the center of innovation it should be.