Want to know how government policies waste Americans’ time and money? We saw a vivid demonstration recently at the Port of Baltimore.
Before customers can buy Ford Transit Connect cargo vehicles, workers at the Port of Baltimore first unload Ford Transit Connect passenger vehicles from Europe, strip the extra seats, line the floor with durable material, and block out the back windows, transforming the trucks from passenger to cargo vehicles. Why? Passenger vehicles are subject to only a 2.5 percent import tariff, making it cheaper to do this extra work than import the Transit Connect as a cargo vehicle and pay a hefty 25 percent tariff.
Subaru, Chrysler, and Mercedes also have a history of dodging this tariff with similarly wasteful workarounds. In the 1980s, Subaru produced the BRAT truck and bolted “seats” to the bed of the small pickup truck. Chrysler imports the Ram Promaster City from Turkey which is manufactured to easily convert to a cargo vehicle. Mercedes-Benz has the Sprinter, which is assembled and test driven in Germany, then disassembled just enough to qualify it as an unfinished vehicle. The vehicles and crates of parts are shipped to Charleston, SC, on different ships, reassembled, and then distributed to dealerships.
How did such a ludicrous situation come about?
In 1963, President Lyndon B. Johnson implemented the 25 percent tariff in retaliation for an import tariff on chicken imposed by the European Economic Commission. Johnson increased tariffs on potato starch, dextrin, brandy, and light trucks, four of Europe’s major exports to the U.S. This became known as the “chicken tax.” As a result, light truck imports plummeted by 43 percent, from $12.2 million in 1961 to $6.9 million in 1964, and U.S. manufacturers came to dominate the market for pickup trucks.
For that reason, U.S. companies like Ford have touted the importance of the chicken tax, even while actively dodging the tax themselves. The chicken tax is a prime example of the kind of protectionist trade policies that limit consumer’s freedom to get the most bang for their buck, while allowing major players to rig the system for their benefit.
There is no reason to expect any change in the chicken tax soon. While the recently negotiated Trans-Pacific Partnership (TPP) drops many U.S. tariffs on imports from TPP countries to zero immediately and phases out the 2.5 percent tariff on passenger vehicles over time, the 25 percent chicken tax would not be eliminated, or even modestly reduced, until the thirtieth year of the agreement.
Forget that—Congress should remove the 25 percent tax today so automakers no longer have to run around it like chickens with their heads cut off to satisfy their truck-buying customers.
