Believe it or not, there was a time when chicken was considered a luxury item. Today, chicken is easily available and cheap at fast-food places like KFC, Popeyes and your local fried chicken spot, but that wasn’t always the case. Do you wonder why you see few European or Asian auto brand pickup trucks in the United States? These circumstances stem from a little known tax law known as the Chicken Tax.
After World War II, there were massive break throughs in chicken farming in the U.S. Because of these breakthroughs, the price of chicken dropped. An item that was considered a delicacy was now a staple food in American homes. The U.S. was producing so many chickens that it had to find foreign markets to sell the excess poultry too, they choose Europe. The U.S. exported inexpensive chicken, drastically and quickly dropped the price of chicken in Europe. Because of this price drop, chicken consumption rose by 23% in West Germany. U.S. took half of the imported European chicken market.
The Dutch accused the U.S. of dumping chickens at prices below cost of production. The French government banned U.S. chicken and raised concerns that chicken hormones could affect male virility. German farmers associations accused U.S. poultry firms of fattening chickens with arsenic. The next step was the individual countries and then the continent imposed tariffs on U.S. chicken. With the tariffs, the U.S. lost 25% of their European chicken sales. The losses were estimated at $26-28 million (over $210 million today). Something had to be done.
On December 4, 1963, President Lyndon Johnson imposed a 25% tax on foreign potato starch, dextrin, brandy and light trucks in response to the Europe chicken tariff. They added light trucks because U.S. auto makers were losing market shares to Volkswagen (VW) trucks, and Johnson cut a deal to get United Auto Workers (UAW) support on Civil Rights in exchange for the light trucks tax. Imported chicken, Civil Rights and light trucks, got to love politics right? The new tax became known as the Chicken Tax.
The tax immediately impacted light truck imports. West Germany imports of light trucks declined to $5.7 million, about one-third of the value imported in the previous year. Soon VW cargo vans and pickup trucks practically disappeared from the U.S. market. Other auto makers like Toyota, Datsun (now known as Nissan), Isuzu, and Mazda also had their sales affected by the tax. Most pulled their truck models out of the U.S. market all together.
The U.S. auto industry routinely lobbied to keep the tax, as it gave them a market free from outside competitors. The tax also had the added effect of reducing pressure on them to introduce vehicles that polluted less and that offered increased fuel economy.
The tax rolled on, but had another side effect, it stopped the U.S. auto industry from having competition for over 40 years in the light truck market. While this sounds like a good thing, it’s not. Lack of competition leads to complacency and no progress or advancement in products. Think of Electronic Arts (EA), and their John Madden football video game. While it’s the best known and now only authentic NFL game on the market, the game hasn’t advanced or improved in years because of EA cutting a deal with the NFL to make it the exclusive user of NFL team and player likeness in the video game market.
The U.S. auto industry kept on chugging along, making bigger and more air polluting vehicles like Hummers, Expedition and Excursions. Gas was cheap and U.S. consumers wanted the biggest vehicle they could afford or finance. The party came to an abrupt halt in 2008, when the recession hit. Gas prices sky rocketed, wages decreased and suddenly paying over $100 to fill your fuel tank was out of vogue.
U.S. auto makers got so accustomed to making bigger and bigger Trucks and SUVs that they didn’t know how to pivot to making smaller, more fuel-efficient and hybrid vehicles that consumers now wanted. Since the 1980s, the U.S. sedan market had been dominated by Asian and European automakers (Toyota, Honda, BMW, Audi, Mercedes Benz and Mazda) because it was truly a competitive and fair playing field market and the U.S. products weren’t up to par to their foreign counterparts. U.S. automakers didn’t care about this because they were making boat loads of profits on big trucks and SUVs. When the market winds changed and people wanted Prii instead of Expeditions, they couldn’t adapt and all three big U.S. automakers ended up filing bankruptcy and being bailed out by the U.S. government.
Today the chicken tax is still in place, though only on light trucks and not on the other products. The auto market has shifted to alternative fuel vehicles and once again the big three U.S. automakers are playing catch up. After the economy went back to normal, the big three U.S. auto companies once again went back to focusing on big SUV and Trucks. Meanwhile, new U.S. companies like Tesla sprouted up that focused on electric vehicles and foreign companies like Toyota continued making Prii.
Now that electric cars are the future, GM, Ford and Chrysler have shifted to electric vehicle futures as well. The problem is that little niche company Tesla is now a world-wide phenomenon and the clear number one leader in the electric car market. To make matters worse, General Motors (GM) made the first commercially viable electric car in the 1990s called the EV1. They shelved the car due to pressure from the big oil industry, and now they are playing catch up once again. The story reminds me of Kodak and the digital camera.
If you wonder why there’s not as much competition in the U.S. truck market compared to sedans and SUV’s, blame UAW, Lyndon Johnson and chickens.
