Cars and Chickens An Editorial From AIADA

Just over 40 percent of all new cars sold in the United States are now built by international automakers, a fact that has raised concerns in some quarters about the state of the U.S. auto industry. What many do not know, however, is that at least half of these “foreign” cars are actually assembled right here in the United States.

In 2004, 6 million international nameplate automobiles were sold in the U.S. Of these, 3 million were built in U.S. factories by American workers. International automakers have invested $32 billion in the United States and now support 1.8 million U.S. jobs.

But international competitors bring more than just jobs. Domestic automakers have responded to the challenge by re-thinking their product lines and production techniques and building better, cheaper, more fuel-efficient cars.

American consumers are the ultimate beneficiaries. The average initial quality rating of domestic nameplate vehicles has improved 32 percent in just the last eight years.

Still, there are some who wish to slam the brakes on these economic benefits by engaging in old-fashioned protectionism. The issue at hand is a 25 percent tariff on light pickup trucks, imposed in the 1960’s by the Johnson administration in response to German restrictions on U.S. chicken imports. This statute remains on the books over 40 years later, even though the corresponding import duty on passenger cars is only 2.5 percent.

This relic of a bygone era is stirring controversy in current negotiations over the U.S.-Thai Free Trade agreement. Thailand is the world’s second-largest producer of light trucks. Even though the Chicken Tax has been eliminated in every free trade agreement the U.S. has concluded, critics of the negotiations argue that U.S. truck producers aren’t up to the challenge of foreign competition. However, as these modern-day Chicken Littles shriek about the falling sky, Americans would do well to remember that history has many times proved free trade naysayers wrong.

Americans understand that free trade and the resulting competition for their hard-earned dollars makes their lives better, even as we must admit that it can bring some hardship to our neighbors who work in the affected industries. However, that’s why we as a society have chosen to help support these people with unemployment and job training benefits during these transitions.

Make no mistake, the Chicken Tax has made a major impact. By the mid-1960’s, U.S. consumers could no longer buy the Volkswagen pickup – the major target of the Chicken Tax. In 2004, the U.S. imported only 433 pickups from outside North America. Unlike their choices in the passenger car market, consumers can only choose from a limited range of domestically produced pickups.

Blocking out the rest of the world from our pickup truck market harms consumers and, in the long run, producers. International competitors will find other markets in which to compete and domestic companies will slowly lose incentives to innovate. Look at any industry and you will see one thing: innovative companies lead the pack, while companies that fail to produce cutting-edge products at competitive prices fall to the wayside.

Unless lawmakers repeal this onerous tariff, Americans may never see the remarkable progress in the pickup market that competition in the car market produced. Free trade drives investment in our economy and raises our standard of living by increasing consumer choice, generating wealth and creating better jobs.

Opponents of repeal suggest that the tariff encourages U.S. manufacturing by raising barriers to imports. To the contrary, despite the 25 percent tariff, international nameplate automakers have few truck production facilities in the U.S. Of the 27 international nameplate manufacturing facilities currently operating in the U.S., only one solely produces pickups. These facilities were built – and continue to be built en masse – despite the fact that the tariff on imported cars is only 2.5 percent.

Logic warns us not to count our chickens before they’re hatched. Without the flexibility to test pickups in the U.S. market, international automakers – in particular, the smaller producers – are ill-inclined to dedicate huge stores of resources toward the development of U.S. manufacturing facilities.

Four decades ago, no international manufacturers built cars in U.S.-based factories. Since that time, these automakers have invested nearly $32 billion in their American manufacturing facilities, and directly employ over 93,000 Americans in their U.S. operations. Including supplier-based facilities and international nameplate dealerships, these automakers support a total of 1.8 million jobs in the U.S. economy. International nameplate automakers with U.S. manufacturing facilities are: Acura, BMW, Honda, Hyundai, Infiniti, Isuzu, Mazda, Mercedes-Benz, Mitsubishi, Nissan, Saab, Subaru, and Toyota.

By refusing competitors access to our markets we are sticking our heads in the economic sand. Repealing the Chicken Tax will help keep our economic destiny in our hands rather than the hands of a protectionist few bent on wielding outdated and short-sighted policies.