What do American-grown chickens and Subaru pickup trucks have in common with global trade and tariffs? Quite a lot actually!
In the early 1960s, the U.S. was upset with France and West Germany for imposing restrictions on American chicken exports, making it difficult for U.S. farmers to sell their “freedom” birds across the Atlantic.
In retaliation, President Lyndon Johnson decided to strike back with the “Chicken Tax” in 1963—a hefty 25% tariff on foreign-made light trucks. The goal was to protect American truck manufacturers who were losing market share to German and Japanese competitors.
But almost nobody pays the chicken tax. A 25% tariff rate gives companies strong incentives to find workarounds, and the chicken tax has a colorful history of companies engaging in “tariff engineering” to avoid it.
In the 1980s, Subaru exported to the U.S. a small pickup truck called the BRAT. Their engineers cleverly bolted two seats to the cargo bed and installed carpeting and seat belts.
Bam! The BRAT was now considered a passenger vehicle under law and subject to a much more affordable 2.5% tariff.
Even U.S. companies such as Ford have made clever efforts to avoid it. Ford used to import its Transit Connect model from Turkey with seats in the back that were removed when it passed customs, transforming what Ford called a “passenger wagon” into a cargo van.
The North American Free Trade Agreement in 1994 gave U.S. companies a legal workaround to the chicken tax. Today, some pickup trucks sold in the U.S. are assembled across the border in Mexico and Canada, however, President Trump has expressed opposition to this arrangement by recently introducing a 25% tariff on our neighbors.
In my opinion, the reality is that trade imbalances miss the point that one country has more competitive goods to sell than the other. But staying with chickens, what we see unfolding is truly a game of chicken. Let’s see who’s chicken?
How about you? Do you have any tales of tariff engineering? I would love to hear to them.
Write to me at erik@comexlogisticsllc.com
Enjoyed this article? Share it with someone you know.