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Chicken Tax

December 4, 1963 – Present

At the height of Cold War tensions, a tariff dispute over chicken production between Atlantic allies would have lasting consequences for the U.S. automotive industry.

Background for Context

In the wake of WWII, much of the world laid in waste. The firebombing campaigns of Japanese wooden cities and the aerial bombardment of western Europe had left the world economy in tatters. This presented a unique opportunity for the relatively unscathed American government. If the United States were to assist in the reconstruction of Europe and Japan, they could create stronger alliances in the emerging Cold War. The Americans seized this opportunity, using the industrial might of the United States to recover these fragile nations. The Marshall Plan, as this reconstructive process is commonly known, built both political and economic bonds between the Atlantic allies. A consequence of such economic integration was a dramatic increase in the number of goods exchanged between western nations. This transnational commerce, facilitated by the newly established General Agreement on Tariffs and Trade (GATT), birthed the modern global exchange of goods. However, this new global market was a bittersweet deal for European nations. While they were receiving assistance, European economies were heavily influenced by the vastly superior American industrial machine. The inability of European nations to have domestic production dominance soured relations between them and the United States. The resulting economic disputes presented a new set of tensions at the height of the Cold War.

This print is a 1946 political cartoon drawn by British illustrator Clive Uptton. The image depicts one man handing a basket of goods labeled “Marshall Plan” to his neighbor. Uptton is illustrating his support of the Marshall Plan in his depiction of one man representing the United States (left) assisting his fellow neighbor representing Europe (right). The man receiving the goods claims he will be self-sufficient by 1952, implying that the Marshall Plan will have achieved its objective and fully rebuilt Europe by the date.

 

Source : U.K. National Archives

Marshall Aid Cartoon, Clive Uptton, 1946

Cheap American Chickens

The United States’ involvement in WWII initiated a new wave of economic development across the nation. The workforce, which had previously manufactured armaments, was now returning to more civilian roles. In the agricultural sector, farmers were able to harness the industrial capability of the American economy to cheapen the costs and increase the yields of production. This meant that agricultural products, notably chickens, were available in large quantities to satisfy both domestic and foreign markets. Given the post-War economic integrations, American farmers began exporting their chickens abroad. When these cheap American chickens reached the shores of Europe, their low price undercut the domestic products offered by French and German farmers. Quickly, American agricultural products became dominant in the western European markets, taking vital revenue away from domestic farmers. While the free market had previously benefited western Europe in the post-war reconstruction, it was now leaving its economy open to foreign domination. In an act of trade protectionism, western European nations placed steep tariffs on American chickens as a means of removing their price advantage. Given that West Germany was the largest export market for these products, these imposed tariffs presented a threat to both the dominance of American farmers and the momentum of market liberalization which the U.S. had been pushing forward. On a larger scale, the “Chicken War” put into question whether Cold War relationships could be retained under the strain of dispute.

Truck Tariffs & The Chicken Tax

In response to the tariffs levied against the American chicken industry, President Lyndon B. Johnson issued Proclamation 3564 on December 4 of 1963. Proclamation 3564 was a document instating tariffs on common European goods including potato starch, brandy, and dextrin. However, the most impactful of these tariffs would be the 25% tax on imported light trucks. In the context of the 1960s, the tariff imposed on light trucks, broadened to cargo vehicles, radically changed the American automotive market. During this time, Volkswagen had become a serious contender in the United States with its Type 2 model. The “Bus”, as it is more commonly known, was becoming an icon for the period; beating out all offerings from American automotive firms. With the designs for a pickup truck variant of the Bus underway, Johnson feared that the American automotive market would become dominated by foreign firms. At the same time his fear was developing, American chickens were being subject to heavy taxes in Europe. In his attempt to protect the American automotive market while also retaliating against European tariffs, Johnson instituted the 25% “Chicken Tax” on imported light trucks. This effectively removed foreign manufacturers of cargo vehicles from competition in the United States. As a result, American automotive firms were given a significant advantage in a growing market sector. Something to note is that Johnson was campaigning for his first presidential election after assuming office following the assassination of President John F. Kennedy. The Chicken Tax was also likely intended to increase his popularity among American business magnates whom he hoped would support his election campaign.

The image is a portion of President Lyndon B. Johnson’s Proclamation 3564 in which his administration lists the items subject to taxation. The most prominent of these items are automobiles, specifically trucks, which are imposed with a 25% tariff as shown. Note : The proclamation was written on December 4 of 1963, however, it was not to take effect until January 7 of the following year.

 

Source : GovInfo

Proclamation 3564, Lyndon B. Johnson (Administration), December 4, 1963

The Ford Transit Loophole

As expected, companies began searching for loopholes to subvert the Chicken Tax. In an infamous example, Ford was able to manipulate the manufacturing process of its Transit family of vans to bypass the tariff. Under the Chicken Tax, vans outfitted with rear seats would be considered “passenger vehicles” and therefore receive an exemption from taxation. Finding an opportunity, Ford moved its production of vans to cheaper labor markets overseas. The Transit vans were manufactured in Turkey, installed with rear seats, and then exported to the United States. When they reached the U.S., the vans were passed through customs without being subject to the Chicken Tax. From there, the rear seats were removed at a Baltimore area warehouse, allowing them to be sold as cargo vans at a competitive price. While Ford is not unique in utilizing loopholes to avoid the Chicken Tax, they are the most visibly blatant in its efforts to avoid it. Nevertheless, Ford’s efforts to undermine the U.S. tax code remain a rather humorous and interesting anecdote for the lengths corporate America is willing to go to add to its bottom line.

Present Impact

While the tariffs imposed on potato starch, brandy, and dextrin were repealed in time, the tax on light trucks remains active albeit at a far lower rate. The Chicken Tax when combined with increasingly expensive labor makes manufacturing vehicles in foreign markets largely price-prohibitive. As a result, nearly every single vehicle which would be subject to the Chicken Tax is manufactured in the United States or the cheap labor markets found in Mexico. Given the inherent advantage of domestic production, American-based firms have been able to use their expansive infrastructure to keep a stranglehold over the market. However, this is not to say the American market is free of competition. Foreign firms such as Toyota and Nissan have been able to move large portions of their production to the U.S.; lowering the price of said firms’ offerings. As companies continue to find workarounds to the Chicken Tax, the U.S. automotive market will be increasingly competitive with both domestic and foreign firms avoiding Cold War-era trade protectionism in favor of a more liberalized economy. Today, the Chicken Tax stands as a relic of economic policy with current implications for the United States’ automotive market.

Longley, R. (2019, September 2). The Chicken Tax and Its Influence on the U.S. Auto Industry. ThoughtCo. Retrieved January 28, 2023, from https://www.thoughtco.com/chicken-tax-4159747

 

Lyndon B. Johnson (Administration). (1963, December 4). Proclamation 3564. GovInfo. Retrieved January 28, 2023, from https://www.govinfo.gov/content/pkg/STATUTE-77/pdf/STATUTE-77-Pg1035.pdf

 

Executive Office of the President Council of Economic Advisers. (2006, February). Economic Report of the President (2006). GovInfo. Retrieved January 28, 2023, from https://www.govinfo.gov/content/pkg/ERP-2006/pdf/ERP-2006-chapter7.pdf

 

Uptton, C. (1946). Marshall Aid Cartoon. U.K. National Archives. Retrieved January 28, 2023, from https://www.nationalarchives.gov.uk/education/resources/cold-war-on-file/marshall-aid-cartoon/

 

The Chicken War: A Battle Guide. (1964, January 10). The New York Times. Retrieved January 28, 2023, from https://www.nytimes.com/1964/01/10/archives/the-chicken-war-a-battle-guide.html

 

Gatt Referee for “Chicken War.” (1963, October 16). The Glasgow Herald. Retrieved January 28, 2023, from https://news.google.com/newspapers?nid=2507&dat=19631016&id=x2tAAAAAIBAJ&sjid=fKMMAAAAIBAJ&pg=1540,2493918

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