The flap of a chicken’s wing can cause the collapse of an auto industry 50 years later by mattsteinglass
May 6, 2009, 9:31 pm
Filed under: Transportation

On Dani Rodrik’s blog, Robert Lawrence has an explanation of the long slow suicide of the US automakers that’s so neat and unexpected, it’s too good to be true. We all know US automakers chose to build SUVs  and pickups for far too long because the profit margins were higher. But why were the profit margins higher? In part, as it turns out, because the US charged a 25% tariff on imports of light trucks, and just a 3.5% tariff on imports of other cars. But why did the US charge a 25% tariff on light trucks? Aha:

It all comes down to the long forgotten chicken wars of the 60s.  In 1962, when implementing the European Common Market, the Community denied access to US chicken producers. In response after being unable to resolve the issue diplomatically, the US responded with retaliatory tariffs that included a twenty five percent tariffs on trucks that was aimed at the German Volkswagen Combi-Bus that was enjoying brisk sales in the US. 

Since the trade (GATT) rules required that retaliation be applied on a non-discriminatory basis, the tariffs were levied on all truck-type vehicles imported from all countries and have never been removed. Over time, the Germans stopped building these vehicles and today the tariffs are mainly paid on trucks coming from Asia. The tariffs have bred bad habits, steering Detroit away from building high-quality automobiles towards trucks and truck like cars that have suddenly fallen into disfavor.

It’s so crazy and perfect it almost defies belief. But a lot of things that defy belief have turned out to be true lately.


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