The election of Donald Trump has created a mixture of hope and trepidation amongst dealers, automotive manufacturers, parts suppliers, and in the whole automotive ecosystem in general.
Will the Trump administration lower taxes, deregulate the industry and usher in an economic boom time? Or, will the auto industry be subject to massive upheavals in terms of its manufacturing centers, tariffs, and tax policy creating a period of instability?
I could speculate on what will occur, but that would be a fruitless enterprise.
Instead, I’d like to focus on chickens. Yes, chickens -- And not just regular chickens, but American chickens with a ticket to ride to Germany.
One of the great truths about history is that it is indeed stranger than fiction. How does our modern day political and economic situation in the auto industry relate to chickens? Well, as it turns out, there is a direct and integral link between the modern automotive industry and chickens.
For the past couple of decades, up until the emergence of Donald Trump, industry insiders had thought that this automotive ‘chicken’ connection was no longer a factor in our modern world. They were wrong.
Ok, so what’s the deal with the chickens?
To know, you have to get into a little history. Back in the 1960’s, Germans (West) found themselves in a sudden and deep love affair with American chickens. After World War II meat was scarce in Germany, and even by the early 1960’s widely available and affordable meat in the German marketplace was a foreign concept. Enter the world of the American chicken industry. Starting in the late 1950’s American chicken exporters began to flood the German market with cheap, American-raised Chickens. Other European countries also got into importing American chickens en masse, such as France, Netherlands, etc.
German families were ecstatic to finally have an affordable every day protein available and this seemed to be a perfect economic win-win. Except it wasn’t. German chicken farmers who were boxed out and outpriced by the American chicken glut complained to the West German government. In 1961, along with their allies in France, Netherlands, and other Common Market countries in Europe, they imposed sudden and steep tariffs on American chicken exports.
This reduced the American chicken export market by nearly a quarter overnight and ignited a mini-trade war between the U.S and many European countries. At the same time as the chicken fight in Europe, Volkswagen, along with a few other notable European automotive manufacturers, had begun exporting pickup trucks and other cargo vehicles into the U.S, and they were becoming extremely popular.
In 1963, after a breakdown in negotiations, the government of Lyndon Johnson decided to penalize European truck exports and imposed “The Chicken Tax.” The American Chicken Tax wasn’t actually targeted at chickens of course, but instead was aimed at vehicles that could be used to transport goods. This meant pickup trucks, commercial trucks -- anything with a flat bed or cargo storage capability. Worse than that, it was a massive tariff -- 25%! And beyond the retaliation to the German/European Chicken Tariff, the new Chicken Tax was aimed at all vehicles not produced in the United States.
In effect, the U.S government took the European chicken trade war as an opportunity to protect American vehicle manufacturers from all worldwide competitors in the pickup truck sector. The Chicken Tax had a wide-ranging effect in the U.S auto industry. American trucks had a clear advantage for nearly 30 years, allowing them to dominate the space in the 1980’s, not having to compete with lower cost Asian exports. The Chicken Tax provided a cocoon in which the U.S truck market flourished. In the late 1980’s and 1990’s, Japanese and other manufacturers were able to avoid the Chicken Tax by assembling and building vehicles within the United States, but this was considered a victory for the U.S economy as it brought jobs and resources to the country.
After NAFTA was passed in the mid 1990’s, the Chicken Tax was suspended for vehicles manufactured in Canada and Mexico. This set the stage for the huge influx and production boom of truck assembly plants in Mexico from automakers all over the world, including U.S. manufacturers.
Indeed, much of the political rancor related to the automotive industry from the 2016 election was centered around the concept of American manufacturers who’d moved production to Mexico (seeking lower cost production), potentially being penalized by the Trump Administration for doing so. In fact, many U.S plants would likely have never moved if it were not for NAFTA extending protection against the Chicken Tax for companies operating out of Mexico.
What a tangled web we weave! An American tariff law that helped build the U.S dominated pickup truck industry which was voided in the case of NAFTA countries, is now the primary mechanism and threat to U.S manufacturers should the Trump Administration remove the NAFTA provisions altogether.
Truly, the long term decision making moves from some of the world’s largest vehicle manufacturers could be severely disrupted should NAFTA be canceled.
It would seem that the Chicken Tax, in all its glory, has returned to relevancy after several decades of loopholes rendered it inert. Could it be that Donald Trump and his administration are rabid Chicken Tax supporters?
Have the chickens come home to roost?