Why the chicken tax still controls the U.S. light truck market
Since 1964, the chicken tax has curbed foreign light-duty vehicle imports, and even 60 years later, it still stifles competition in the U.S. market.
The automotive industry saw one of the most important tariffs introduced more than 60 years ago, and its ramifications are still rippling through the market today. The Chicken Tax ultimately reduced the competition domestic automakers, like Ford and GM, faced in the light pickup segment. While the Chicken Tax was a reasonable piece of legislation back then, it has long outlived its original purpose.
The Chicken Tax was a response to European tariffs
Following World War II, intensive chicken farming resulted in chicken prices dropping, causing the protein to become a staple food in the United States. Imports to Europe effectively undercut the European chicken market, with the United States taking nearly half of the market share.
Shortly after, Europe, namely France and Germany, implemented tariffs on chicken imported from the United States. By 1962, the United States had lost nearly a quarter of its European chicken sales, amounting to roughly $261 million in today’s money. Negotiations regarding the tariffs ultimately failed, and in December 1963, President Lyndon B. Johnson imposed a 25% tax on brandy, dextrin, light trucks, and potato starch, effective January 7, 1964.
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Automakers used tariff engineering to get around the Chicken Tax
The implementation of a 25% tariff on light-duty vehicles was devastating to smaller automakers, particularly those that hailed from Asia. It didn’t take long for Japanese manufacturers to start exporting the entire light truck, minus the truck bed, which was only subject to a 4% tariff. The truck bed would then be attached to the rest of the body on United States soil.
That loophole was closed in 1980, and in 1989, the vehicle classifications changed to include two-door SUVs, causing them to fall into the same category as light trucks. Shortly after, foreign automakers, including Honda, Toyota, and Nissan, built assembly plants in North America. Mazda
Other automakers worked around the tariff by rebadging their vehicles. The Mazda B Series, for example, was rebadged as the Ford Ranger, and both small trucks rolled off Ford’s St. Paul assembly line in Minnesota. Ultimately, however, Mazda, along with many other small automakers, pulled their light trucks from the United States market. Volkswagen in particular is an interesting case.
“VW's decision not to make small trucks, particularly for export to the US, may well have been determined by the 25% duty, or affected by poor management decisions, not unusual with regard to VW. It probably wasn't worth the capital investment for VW to produce small trucks in the US or Mexico for a market that is largely limited to North America,” said David A. Gantz, Professor of Law and Director of the International Trade and Business Law Program, University of Arizona, via email.
The Chicken Tax has outlived its original purpose
With 60 years of history behind it, the Chicken Tax has long outlived its original purpose. A lack of competition among domestic automakers has stifled innovation in the small truck segment. While the Chicken Tax originally targeted German vehicles, namely the Volkswagen Type 2, its continued existence is questionable at best. VW
“The chicken tax is a good example of a tariff increase that may have been justified initially but has long outgrown its original purpose since VW and the EU are no longer major producers of light trucks,” said Gantz.
In fact, while most automakers are still affected by the tariff today, the US-Korea Free Trade Agreement was renegotiated to expire in 2041 during Trump’s first presidency. That agreement makes Korean automakers exempt from the 25% tariff, so manufacturers like Hyundai and Kia can import their light-duty vehicles without an additional exorbitant cost.
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The Chicken Tax won’t be repealed anytime soon
If the Chicken Tax has long outlived its original purpose, why is it still around? The Detroit Big Three automakers still rely on the tariff to keep competition in check. There’s an enormous amount of support for the 60-year-old tariff, and not just from the Big Three.
“Politically, it has no chance of being reduced or repealed, given its broad support from the US Big Three, the automotive unions, both parties in Congress, and the politically powerful local dealership owners. Toyota and Nissan might also be opposed since they have invested hundreds of millions of dollars in small truck production in the US,” said Gantz. Kia
As a result, the Chicken Tax likely won’t get the ax and allow more foreign trucks into the United States anytime soon. Even if it were on the docket, other countries have no incentive to work out a deal. Many of them may have no interest in getting rid of the tariff to begin with since it's so ingrained in the global automotive industry.
Final thoughts
One has to wonder whether the Big Three could have survived competition in the truck segment from foreign automakers. Foreign and domestic manufacturers alike still make trucks for other markets. Mazda recently unveiled the updated BT-50 pickup for Australia. Ford followed suit with the Ford Ranger PHEV and Super Duty for the Australian market as well.
While Toyota, Honda, Nissan, and Hyundai have each introduced their own trucks, they aren’t where the automakers make their profits, nor did they take a large amount of market share from domestic manufacturers. The Big Three, however, rely on trucks and large SUVs to fund research and development of other projects, including electric vehicles.
“...One can question whether the Big Three automakers would have survived in their present form without this tariff protection. They have largely ceded the passenger car industry in the US to Honda and Toyota. Most of the US Big Three profits, including those needed to support their transition to EVs, come from sales of small trucks and large SUVs,” said Gantz.
With the Chicken Tax unlikely to be repealed or replaced, I can’t help but wonder if the Trump administration will repeat history with Chinese automotive manufacturers. BYD, a Chinese PHEV and EV company, is breaking into Mexico, potentially giving the automaker a pipeline into the United States.
Will a tariff prevent the importation of Chinese vehicles when they’re on our border? We’ll just have to wait and see what the future holds in store, I suppose.
Related: Chinese EVs are coming to the U.S., tariffs or no tariffs
