THE STORY OF CHICKENS AND PICKUPS
Fifty years ago, America was staring down the barrel of a major international crisis. The problem wasn't a big wall in Berlin or nuclear missiles in Cuba; the problem was frozen chicken.
In the early 1960s, the U.S. was farming chicken on a massive scale and sending it to Europe, where chicken was far rarer and more expensive. The glut of U.S. chicken drove down prices in Europe, edging local farmers out of the market. To protect their national interests, European countries either banned or instituted huge tariffs on chicken from the U.S.
The U.S. retaliated by targeting key European products, and one of the most threatening products at the time was the light pickup truck -- specifically, trucks from Volkswagen. The so-called "chicken tax" was instituted by president Lyndon Johnson and imposed a 25% tax on trucks and commercial vans imported to the U.S.
But the "chicken tax" didn't just affect automakers in Europe, it affected automakers around the globe, including those in Japan. For 50 years, it has made importing light trucks and commercial vans prohibitively expensive, which is why the only non-Detroit trucks to earn a toe-hold in the U.S. have been those built by foreign companies at U.S. facilities.
The downside, as our colleagues at Green Car Reports have noted, is that the "chicken tax" has effectively insulated U.S. truck manufacturers from competition for five long decades. That's kept prices high and created huge profit centers at Chrysler, Ford, and General Motors -- so much so, some argue, that the Big Three have slacked off in developing innovative cars because they've become addicted to the easy money offered by pickups.
The upside, however, is that the "chicken tax" has given the U.S. a bargaining chip in international negotiations. And that's coming in very handy right now.
The world is a very different place than it was in 1963. People are more mobile, able to travel to nearly every corner of the globe with ease. We can communicate with friends and relatives thousands of miles away -- and we can do so instantly, with video, on devices that we carry in our pockets.
National borders have blurred. Mega-corporations have offices in hundreds of locations around the planet creating vast networks of pseudo-nations. And though it's been bumpy the last few years, partnerships like the European Union show that, on the whole, collaboration and interaction provide far more benefit than isolation.
It's in that spirit that the U.S. has entered into negotiations for something called the Trans-Pacific Partnership, which is basically a free-trade pact between Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States.
You'll notice a curious absence in that list: Japan. (South Korea isn't on it, either, but the U.S. has its own free-trade agreement with South Korea in the works.) Japan hopes to become part of the TPP, too -- and that's where the "chicken tax" comes in.
Japan is a notoriously insular country. On the commercial front, that means that foreign companies have a very hard time doing business in Japan, if they can break into the market at all. U.S. automakers, for example, have little to no presence in the country.
So now, both side want something. Japan wants to import trucks to the lucrative U.S. auto market, and the U.S. wants broader access to Japan's marketplace, too. If Japan will ease its import restrictions, the U.S. will likely do so, too, by ending the "chicken tax".
WHAT WILL IT MEAN?
If the "chicken tax" is abolished, it may not have much of an impact on U.S. truck sales -- at least not for the next few decades. Truck buyers are among the most brand-loyal shoppers around, and Detroit has had 50 nearly hassle-free years to build its pickup truck brands.
In other words, today's drivers aren't likely to switch from a Ford or Ram to a Subaru or Mitsubishi or Volkswagen just because the trucks are cheaper. Those shoppers' children and grandchildren may make the jump, but for now, U.S. marques are sitting pretty.
On the other hand, if the "chicken tax" goes the way of the dodo, truck prices would likely fall due to increased competition. That's not necessarily a bad thing -- after all, truck prices have climbed about twice as fast as car prices over the years. Detroit would be forced to give up its easy money and innovate, but in exchange, it would have easy access to new markets.
Is the trade-off worth it? Sound off in the comments below.
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