Chicken Tax

DEFINITION of 'Chicken Tax'

The Chicken Tax is a tariff on light trucks made outside the U.S. It is also, and more properly known as the Chicken Tariff. The tariff was imposed in 1963 by President Lyndon Johnson by executive order under authority of the General Agreement on Tariffs and Trade (GATT). The tariff originally put a 25% imposition on potato starch, dextrin and brandy as well as light trucks, but in the intervening decades other provisions were stripped out, and only the tariff on light trucks remains.

BREAKING DOWN 'Chicken Tax'

Why does the Chicken Tax refer to tariffs on light trucks imported to the U.S.? In the late 1950s and early 1960s, Europe was still recovering from World War II, and chicken was expensive, particularly in Germany. In the United States, on the other hand, industrial farming methods developed after the war led to a vast increase in the amount of chicken produced, which brought the price of chicken down considerably. Chicken, which was once considered a delicacy to be eaten at Sunday dinner, became a staple of the American diet, and enought chicken was left over to export to Europe.

According to an article in Time magazine from 1962, chicken consumption in 1961 rose 23% in West Germany. European countries complained that U.S. farmers were cornering the chicken market and driving local producers out of business, and by the end of the year European nations including France and Germany had begun to place tariffs and price controls birds from the U.S. At the beginning of 1962, U.S. businesses began complaining they were losing sales, and by the end of the year they estimated a 25% loss in sales due to European intervention in the chicken market.

Diplomats from Europe and the U.S. tried to reach a trade agreement on chicken through 1963. Meanwhile, the auto industry in the U.S. was suffering its own trade crisis. Imports of Volkswagen cars had surged in the early 60s as American consumers fell in love with the "Bug" and its cousin, the Type 2 van. According to tapes recorded in the Johnson White House that were released in the 1990s, the situation was dire enough that U.S. auto makers and the United Auto Workers were willing to make German auto imports a barganing chip. According to the New York Times, "President Johnson was trying to persuade Walter Reuther, the U.A.W.'s president, not to call a strike just before the 1964 election and to support the President's civil rights agenda." The solution was to include light trucks in the Chicken Tax.

Although tariffs were taken off the other items in the Chicken Tax, determined lobbying by the auto industry over the last 50 years has kept the law alive, and that is why American made trucks still dominate sales in the U.S.

Read more: Chicken Tax Definition | Investopedia http://www.investopedia.com/terms/c/chicken-tax.asp#ixzz4YEPF70pg Follow us: Investopedia on Facebook


Featured Posts
Recent Posts
Archive
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square
© Copyright