If You Aren't Worried About A Trade War, You Don't Know About The Chicken Tax

If you are an actual business leader, and not a real estate speculator pretending to be one, you probably know that trade wars are neither “good” nor “easy to win.” In fact, history proves just the opposite. And since the United States just fired the opening salvo in what many observers fear could be a big trade war, it’s probably a good time to ask yourself what this means for your company.

If your business does not rely on imported steel or aluminum, you might be tempted to answer, “Not much.” But if you do, you’re probably not thinking hard enough. And you’ve probably forgotten that a tariff imposed on U.S. chickens by France and West Germany back in the early 1960s is still creating major headaches for automakers from Detroit to Düsseldorf.


Playing Chicken

The switch to factory farming in the United States after World War II transformed chicken from a luxury food to a mass-produced commodity. Once American poultry companies had satisfied the domestic demand, they started shipping their surplus boilers and fryers across the Atlantic.

Soon, European chicken farmers were crying foul.

As the price of poultry plummeted across the newly formed Common Market, European countries established price controls. France was the first to impose tariffs on U.S. chickens, but West Germany soon followed. American chicken exports fell so precipitously that some U.S. politicians threatened to pull U.S. troops out of Europe.

Instead, the United States decided to retaliate economically.

In 1963, President Lyndon Johnson imposed a 25 percent tariff on potato starch, dextrin, brandy and light trucks. What did these products have to do with chicken? Nothing. But they were all imported from Europe in large quantities — at least in the early 1960s. And the General Agreement on Tariffs and Trade allowed countries to increase taxes on unrelated imports to an equal amount to losses from unfair trade.

The brandy tax hit the French hard, and the tariffs imposed on light truck were aimed squarely at the German automobile industry, which was making big inroads into the U.S. market with an array of innovative and economical small vans and pickups.

The American strategy worked. Volkswagen AG’s pickup and van business collapsed in the United States, and demand for French brandy began to dry up.

But the Europeans were not the only ones who suffered.

Unintended Consequences

Japanese automakers were also hit hard by the tariffs on light trucks, even though their nation’s roosters were not party to this cockfight.

The 25 percent tax made small pickups produced by the likes of Toyota and Isuzu uncompetitive versus those produced by U.S. manufacturers, and that prompted the American automobile industry to lobby successfully for the continuation of the so-called chicken tax long after the poultry battle was over.

And so it remained in effect. But this, too, had unintended consequences for those same Detroit automakers.

The Japanese found ways around the chicken tax. They began importing truck chassis and adding the beds to them after they were offloaded in the United States. Later, as demand for their superior products grew, they decided it was more cost-effective just to build the pickups in America, and so constructed their own U.S. factories.

By the early 2000s, Detroit was falling victim to the chicken tax itself.

As Japanese automakers began to dominate the small truck market with domestically produced pickups, their American rivals struggled to match them. But uncompetitive labor agreements prevented General Motors, Ford and Chrysler from profitably producing small trucks in the United States. They were forced to cut corners, and customers could tell, so their sales slumped.

General Motors and Chrysler began importing small trucks from Mexico and Canada, which were exempted from the chicken tax by the North American Free Trade Agreement, or NAFTA.

Ford faced a bigger challenge. While it produced some of the best light trucks in the world, it produced them in places such as Thailand and Turkey. Importing them to the United States would have made them too expensive to compete.

So, Ford took a page from the Japanese playbook.

It started importing small commercial vans from Turkey as passenger vehicles, equipping them with rear seats, seatbelts and windows, then removing this equipment after the vehicles were landed in the United States and reconverting them to commercial vehicles.

It was a costly kabuki dance, but still cheaper than paying the chicken tax. At least for Ford.

Consumers continue to pay more for their pickups than they would without the chicken tax, as they have for decades.

Neither Easy nor Good

These are just some of the ways in which a trade war sparked by poultry tariffs in the mid-twentieth century has continued to impact companies in other industries well into the twenty-first.

In the same way, it will take a long time for the full impact of President Donald Trump’s tariffs on steel and aluminum to become clear. The Europeans are already threatening to impose tariffs on Levis and Harley-Davidsons.

But businesses — and business leaders — cannot afford to wait until they do. They need to start thinking today about the ways in which this trade war could impact their companies tomorrow.

As for the chicken tax, it remains in effect. It would have been repealed by the Trans-Pacific Partnership agreement, but … well, you know.

Bryce Hoffman is the author of Red Teaming. To learn more about red teaming, please visit redteamthinking.com.

I am a bestselling author, speaker and president of Red Team Thinking LLC. In 2015, I became the first civilian to graduate from the U.S. Army’s red team leaders trainin...