How A Tax On Chicken Changed The Playing Field For U.S. Automakers

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German families in the 60s loved cheap American-raised chicken. And Americans loved cheap VW Beetles. We hear how a trade dispute over frozen chicken parts changed the American auto industry.

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Transcript

RENEE MONTAGNE, HOST:

Pickup trucks made by U.S. automakers rule the road, and that's been true for more than 50 years. The dominance of American pickups has been aided in part by - of all things - chicken. It has to do with a tariff on foreign trucks called the chicken tax. Sonari Glinton from NPR's Planet Money team explains.

SONARI GLINTON, BYLINE: In the early '60s, the U.S. was going through a Beetle invasion - and no, not John, Paul, George and Ringo.

(SOUNDBITE OF VOLKSWAGEN COMMERCIAL)

UNIDENTIFIED WOMAN: Ein Volkswagen, Mr. Manhattan.

BOB LUTZ: Beetles were everywhere in the late '50s and early '60s.

GLINTON: That's the voice of Bob Lutz. He's worked for darn near every car company in Europe and the U.S., beginning in 1963.

LUTZ: Everybody had to have one Beetle, two Beetles. They had to have a Beetle plus a Volkswagen bus. And it became sort of a cult object. And I think everybody was worried about it.

GLINTON: Now, while the U.S. was falling in love with the Beetle, postwar Europe had arisen again and was starting to buy cheap, delicious frozen American chicken.

LUTZ: In Germany, there's a lot of fast-food fried chicken places, and it's an extremely popular food. And the U.S., of course, at the time and probably today, is the world's most efficient producer of chickens.

GLINTON: In one year, sales of U.S. chicken in West Germany went up nearly 23 percent. Now German chicken farmers got all worried, so their government slapped a nearly 50 percent tariff on our chicken. In retaliation, we looked around for something we could tax, so we found German pickup trucks. And in 1963, the U.S. put a 25 percent tariff on all trucks imported from outside the U.S. It's called the chicken tax. John Krafcik is former CEO of Hyundai. Now, he's with the car sales website truecar.com.

JOHN KRAFCIK: I think the chicken tax is one of the most important determinants of how the industry looks today and how it operates today in the U.S.

GLINTON: Krafcik says that's because essentially from that point forward, U.S. pickup truck makers had no foreign competition. He says if not for the chicken tax, pickup trucks in general would be less expensive, there would be more choice.

KRAFCIK: And they would be more fuel efficient on average. I don't think anybody would dispute those things. The flipside of that is I think we would have fewer plants in the U.S. building pickup trucks.

GLINTON: And here's something else that almost no one would dispute - U.S. pickup trucks are kind of awesome. The Ford F-150 has been the best-selling vehicle for more than 30 years. And it would take years - even decades - for foreign competition to catch up. So here's a question I took to Ford's CEO Mark Fields at the last big auto show in Detroit.

Why do you still need the chicken tax?

MARK FIELDS: Well, in terms of the - clearly, when you look - we're free traders, but we want to make sure we're on a level playing field. And right now around the world, not so level depending upon things.

GLINTON: I asked Sergio Marchionne the same thing. He runs the FCA Group, the company formerly known as Chrysler.

SERGIO MARCHIONNE: I'm the wrong guy to ask that question because I would not have the chicken tax. But that's just my view.

GLINTON: Why not? I mean, you're the right person to answer. You're in charge of an American car company that benefits.

MARCHIONNE: I am. Do I need the chicken tax? The answer is no.

GLINTON: Now, publicly, no CEO will express love for the chicken tax, but they're not working too hard to see this 25 percent tariff on foreign competition go away anytime soon. Industry insiders say trade negotiators on likely using the chicken tax as a bargaining chip to lower tariffs in other countries right now. This time, though, it might be rice. Sonari Glinton, NPR News. Transcript provided by NPR, Copyright NPR.