Hey, it's Robert Smith here. We wanted to replay one of our
favorite episodes today because it seems super relevant for what's
about to come. As you probably know, our new president, Donald J.
Trump, loves to talk about the tariffs - tariffs, taxes on imports.
And he wants to use these tariffs mainly as a threat to keep
factories in the United States, saying, if you move manufacturing
to a foreign country, we will tax the products when they come back.
That's a tariff.
Now, this idea was not invented by President Trump. In fact,
we have already lived through these kind of tariffs. And we wanted
to tell you the story of how one of the strangest tariffs of all
time changed the thing you may be inside of right now - the
automobile.
We did this podcast with NPR's car correspondent Sonari
Glinton. And after it's over, we'll get an update on where things
stand right now.
SONARI GLINTON, HOST:
All right, Robert. This is really exciting. We're in Midtown
Manhattan right across from Bryant Park. And I want to try an
experiment, which is ask people to name off the top of their head
as many midsized sedans as they know.
UNIDENTIFIED MAN #1: Audi A7, BMW 5 Series, Ford
Focus...
UNIDENTIFIED MAN #2: Kia Spectra, Chevy Impala, Dodge
Charger...
UNIDENTIFIED MAN #3: BMW X5, BMW X3, the Fourth Series, 435s
and Nissan Altima.
SMITH: OK, I get it. Like, the answers sort of run the gamut.
Like, we have foreign cars, American cars, lots of different
cars.
GLINTON: Exactly, but let's start something a little less
easy. Let's ask some of these people how many pickup trucks they
can name.
UNIDENTIFIED MAN #4: Pickup trucks...
UNIDENTIFIED WOMAN #1: Pickup trucks - I...
UNIDENTIFIED MAN #4: Ford F-150s.
UNIDENTIFIED WOMAN #1: Yeah, definitely.
UNIDENTIFIED MAN #5: Well, I guess there's the Ford
F-150.
UNIDENTIFIED MAN #6: Ford F-150 - the 550 - whatever it's
called.
GLINTON: The Ford F-150, OK.
UNIDENTIFIED MAN #6: F-150 - all right. And then you got the
Ram, right? And then...
UNIDENTIFIED MAN #7: Ford F-150...
SMITH: I think I see where you're going with this, which is
when you talk about trucks, you are essentially talking about
American trucks - the Ford F-150, other American-made trucks.
Nobody named a foreign truck.
GLINTON: Exactly. That's because the American trucks just
dominate the space - I mean absolutely, completely dominate the
space. And there's a reason for that, Robert. The reason is
chicken.
SMITH: And not just chicken but frozen chicken parts shipped
to Germany after World War II. Believe me. We'll explain.
(SOUNDBITE OF MUSIC)
GLINTON: Hello, and welcome to PLANET MONEY. I'm Sonari
Glinton.
SMITH: And I'm Robert Smith. Today on the show - chicken,
trucks - trucks and chicken and how a trade dispute can change the
entire world.
(SOUNDBITE OF MUSIC)
SMITH: OK, we are going to lay it out for you - how a frozen
chicken drumstick led directly to the awesomeness of the Ford
F-150. It goes back to after World War II in the late '50s, early
'60s. And the European economy is finally getting better. And
everyone is sort of helping each other in the world. This is an era
of free trade.
GLINTON: And Americans are going absolutely bonkers for a
German import.
(SOUNDBITE OF ARCHIVED RECORDING)
UNIDENTIFIED WOMAN #2: Ein Volkswagen.
UNIDENTIFIED MAN #8: Ein Volkswagen.
UNIDENTIFIED WOMAN #3: Ein Volkswagen (speaking German).
UNIDENTIFIED MAN #9: (Speaking German).
BOB LUTZ: Beetles were everywhere in the late '50s and early
'60s. And it became sort of almost a craze.
GLINTON: That is the voice of Bob Lutz. He's a car guy's car
guy. He's worked for pretty much every car company - GM, Ford,
Chrysler, BMW, GM again.
LUTZ: Everybody had to have one Beetle, two Beetles. They had
to have a Beetle plus a Volkswagen bus. And it became a sort of a
cult object, and I think everybody was worried about it.
GLINTON: Well, everybody who worked in the American auto
industry was worried about it.
SMITH: Now, meanwhile, over in Germany, they're having their
own sort of trade invasion. This is not cars. This is, as we
promised, the chicken parts because remember; up to this time,
chicken was sort of a luxury in Germany. They were recovering from
the war, and they had their own chicken manufacturers, but were
really expensive.
In comes frozen, American chicken - frozen, American chicken
on the bountiful American farms shipped over to Germany. And all of
a sudden in Berlin, you can have chicken every night for dinner.
They are going crazy for it. In fact, we looked at the stats. In
1961 alone, German chicken consumption went up 23 percent. If we
were going crazy in the United States for the Volkswagen Beetle,
the Germans were going crazy for American chicken.
GLINTON: Yeah, and that's the dream of free trade. They get
cheap chicken. We get cheap cars. It's a bonus for everybody.
SMITH: Except for the German chicken farmers. The German
chicken farmers look around, and their expensive chickens are
losing out to these cheap American chickens. And so they do what
farmers everywhere do.
GLINTON: They went to their government, and they said, protect
us against this cheap chicken that's flooding the market. The
German government responded, and they started a tax on American
chicken up to 50 percent, which is huge.
SMITH: And the Americans are like, wait; wait; wait; wait;
what? Germany, we just helped rebuild you after the war, and you
want to start a trade dispute? You want to tax our chicken? Fine,
we will find some German things that we can tax. It's basic
playground logic - right? - tit-for-tat. So the U.S. plans its
retaliation. They draft this idea aimed at Volkswagen. John Krafcik
is with truecar.com.
JOHN KRAFCIK: So in December of 1963, Lyndon Johnson, who had
just become president less than two weeks before, signed into
effect this tariff - a 25 percent tariff on vehicles that were
deemed to be primarily commercial goods-carrying vehicles.
SMITH: The chicken tax - they actually called it the chicken
tax.
GLINTON: These are pickup trucks and commercial vans, and it's
not just German pickup trucks. It's all foreign trucks. If you want
to make a truck and ship it to the U.S., you got to pay 25 percent
extra. It's called the chicken tax.
SMITH: And it changed the American car industry overnight. The
first thing that happens is that foreign trucks are all of a sudden
way too expensive to compete in this country.
So for instance, Volkswagen had this pickup truck. Basically
it's a VW bus with a flatbed in back. And this was going to be
their next big thing in America after the Beetle and the
regular-sized bus, but once the chicken tax goes in, it is 25
percent more expensive. They pull it from the market. They're like,
we cannot sell this car, this truck in America.
GLINTON: The American companies are obviously happy. There's
less competition. It also allowed the American car companies to
sort of kick back and relax a little bit and not really
innovate.
SMITH: Because of the chicken tax, American trucks basically
stayed the same over the years. I mean they got bigger. They got
fancier. They certainly got more expensive. But without foreign
competition, there weren't a lot of new ideas in the space.
You know, you could imagine if Hyundai had had the opportunity
to build - I don't know - some funky, fuel-efficient truck they
brought to America that would've inspired American manufacturers to
be like, oh, I'm competing with Hyundai on that. But there was no
foreign competition. There was no incentive.
GLINTON: Once you put a tariff on something, the innovation
that would have gone into the product goes into getting around the
tariff. And that's what the car companies started to do. Robert,
things got really crazy really quickly.
Toyota says, so we can't directly ship our trucks from Japan.
I'll tell you what we'll do. We'll build them in parts - giant
parts. They shipped them to the U.S. and then snapped those parts
together, put them on a train, and there you go. They got around
the chicken tax.
SMITH: Because technically they were assembling the car. Even
though all the parts were made in Japan, they were assembling it in
the United States.
GLINTON: Yeah, tighten a couple of screws - made in
America.
SMITH: Good to go.
GLINTON: And U.S. Customs was like, yeah, no, that's not going
to play.
SMITH: And so I'm sure all the foreign car manufacturers at
this point just gave up trying to get around the chicken tax.
GLINTON: Of course not because this is America, the most
important market for any kind of vehicle. Of course they wanted to
get their trucks in. Subaru, which is a great carmaker - they make
SUVs. Why not make a truck? So they did in the '80s. I'm sure you
remember the Subaru BRAT.
SMITH: The Subaru BRAT - my neighbor had one of these. It was
amazing. From 50 feet away, it looked like a pickup truck. But when
you got up close, there were these two flimsy, plastic seats just
bolted into the bed of the truck.
KRAFCIK: The idea was, well, those seats are for people,
therefore it must not be (laughter) a vehicle that's designed to
carry goods. I thought it was a very clever solution.
SMITH: The U.S. government did not think this was a clever
solution. They imposed the chicken tax, and the BRAT went
away.
GLINTON: As time goes by and the global auto industry gets
more interconnected and complicated, you can't parse out
necessarily which is an American company and which is a foreign
company because, say, a company like Ford makes cars and trucks on
five continents.
SMITH: And all of a sudden, American companies started to
encounter the same problem that foreign companies were, which is,
American companies had to deal with the chicken tax.
GLINTON: For instance, Ford makes a cargo van in Europe. It's
called the Transit Connect. But they didn't want to have to pay the
chicken tax. So what they did was they took this cargo van, put
some seats where the cargo was supposed to go, shipped it to the
U.S. and said, hey, that's not a cargo van; that's a passenger van.
The chicken tax doesn't apply. Here's Sean McAlinden from the
Center for Automotive Research.
SEAN MCALINDEN: And when they get here to the United States -
to, let's say, Ohio - they rip the seats out, punch out the windows
and cover them with metal panels and resell the vet vehicle as a
freight van. And it's cheaper to do that than pay the tariff.
GLINTON: After they took the seats out, they sent them back to
Europe, put them in another van and shipped them back to U.S. to be
taken out again over and over and over again in this vicious,
unvirtuous cycle.
SMITH: All of this trade gymnastics may sound like insanity.
And maybe it is insanity, but at the end of the day, the chicken
tax accomplished exactly what it was supposed to accomplish, which
is the dominance of the American truck.
American trucks own the road. And they have for 50 years. In
fact, everyone agrees that American trucks are now so good, have
had such an advantage for so long that even if you got rid of the
chicken tax, it would take years and years and years for the rest
of the world to catch up with American trucks.
GLINTON: And that's the question I've been having for years.
If American trucks are so good, why is the 25 percent chicken tax
still in place? At the most recent Detroit auto show, I got to
speak to Mark Fields. He's the brand-new CEO of Ford Motor Company.
And right before I talked to him, he had just unveiled what almost
every Ford executive would call the most important truck to come
out of Detroit in 50 years. So I had to ask him, if your trucks are
so awesome...
Why do you still need the chicken tax?
MARK FIELDS: Well, in terms of the - you know, clearly when
you look - we're free traders by design. We have been the
best-selling vehicle in the U.S. for 33 years. Well, 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: And you think it's fine. You want to keep it. Do you
need it, though? That's the question.
FIELDS: I think, you know, it's on the books right now. And
you know, that's the reality that we're dealing with.
GLINTON: Robert, let me translate that for you. I speak fluent
auto executive. What he's saying is, we don't really need the
chicken tax, but we aren't going to demand that we get rid of it.
After all, it kind of benefits us.
I thought, that went so well; why stop at one CEO? Let's go on
to the next. So I talked to Sergio Marchionne. He's the head of the
FCA Group, which is the owner of Chrysler. And this is where it
gets weird because this company is a European company and an
American company. So not only is it helped by the chicken tax. It's
also harmed by it as well.
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 - no, but we benefit - when you run a global
organization, the chicken tax is an incredibly protective measure
to try and deal with I think an ill-perceived threat to the
stability of the auto sector. I don't think it does much. But it
exists, so it's going to take a while to try and take it out - take
it off the table.
GLINTON: Finally, how...
MARCHIONNE: It's an interesting question. Why would you ask
about the chicken tax?
GLINTON: Because...
MARCHIONNE: Of all the taxes you could be asking...
GLINTON: Because it's weird. It's weird that this tariff
exists. I mean why not compete on a completely even playing
field?
MARCHIONNE: You sound pretty good to me. I like your story. I
didn't say anything. I'm not the guy that invented the chicken tax.
I comply with the chicken tax. Do I need the chicken tax? The
answer is no.
SMITH: So Sonari, even with CEO doublespeak, I'm not hearing
these guys saying, like, we are going to die as companies without
the chicken tax.
GLINTON: Well, of course not because they have such an
advantage in the minds of the people who buy pickup trucks. It
would take forever to break that bond with the American pickup
truck.
SMITH: And that's the funny thing about tariffs, which is,
once tariffs go into place, there's no real incentive to get rid of
them. Even if you don't need them anymore, they stick around. And
there's a really important reason for this, which is, once you have
a tariff, it becomes a bargaining chip. It becomes something you
can use in the next set of trade negotiations.
Hey, just an ending note here - it's been two years since we
recorded that podcast. And like clockwork, Sonari Glinton just got
back from the Detroit Auto Show. Hey, Sonari.
GLINTON: Hey. How's it going, Robert?
SMITH: It's going good. And you're still thinking about the
chicken tax. It's still a thing in the auto industry.
GLINTON: It is very much still a thing in the auto industry.
And actually listening to the curt (laughter) intonations of Sergio
Marchionne, the CEO of the Fiat Chrysler Group - it's interesting
because he - and along with the other American CEOs of the car
companies - met with President Trump about manufacturing here in
the U.S. and in Mexico.
SMITH: And Donald Trump talks a lot about tariffs and
retaliatory tariffs. He talks about perhaps renegotiating NAFTA,
the North American Free Trade Agreement. And the chicken tax plays
into that, right?
GLINTON: Yeah, exactly because one of the things that NAFTA
did was - the industry and at least our neighbors thought this
tariff is kind of crazy, and that's one of the things that NAFTA
sort of erased. If you are a NAFTA country, you don't have to pay
the chicken tax. So that's why a Ford F-150 - the aluminum body is
built in Mexico and then assembled finally here in the U.S. Ram
builds a lot of its trucks in Mexico, as does Chevy in part because
it's so close to Texas, which is where a lot of pickup trucks are
bought and sold.
SMITH: You know, it's interesting, Sonari, because sometimes I
think that only those of us at PLANET MONEY really are obsessed
with tiny, little, weird tariffs of the past. But if you
renegotiate current trade deals as the president wants to do,
they're all in there. All of this stuff is going to start to come
to light again. Once you reopen big trade agreements like NAFTA,
you're going to have to relitigate all of these old issues
again.
GLINTON: When you think about it, Robert, I have to say, I
have spent, you know, five and a half years covering the auto
industry, and my job for the last five years has been the
tremendous success of the auto industry. And there's this fear
that, hey, guys, if you touch any of this, it may all come tumbling
down.
(SOUNDBITE OF MUSIC)
SMITH: Sonari Glinton, thank you so much. I think about this
podcast all the time. Come back to PLANET MONEY soon.
GLINTON: Would love to.
(SOUNDBITE OF MUSIC)
GLINTON: Well, of course, we always want to hear what you
think. You can email us at
[email protected]. And we're also on
Facebook, Twitter and Instagram.
SMITH: The episode was originally produced by Frances Harlow.
This rerun was produced by Nick Fountain. And if you're looking for
more politics in your life, get used to it. You're going to have to
do it. Check out the NPR Politics Podcast. They're great. You can
find them at npr.org/podcasts or on the NPR One app. I'm Robert
Smith.
GLINTON: And I'm Sonari Glinton. Thanks for joining us.
In 1-2 paragraphs, answer the first four questions in the text
box.
Why was chicken considered a luxury in Germany?
What was the “chicken tax?” (Note: It’s not on chickens)
Describe how car companies get around the tariff.
Explain why Sergio Marchionne, the CEO of FCA group, would not
have the chicken tax.
Answer the question below in a short paragraph.
5. Do you think we should continue to have the chicken tax?
Why or why not?