The Legacy of the ‘Chicken Tax’: A Model for Trump’s Trade Vision?

In 1964, President Lyndon B. Johnson imposed a 25% tariff on imported light trucks in retaliation against Europe’s poultry trade barriers. Known as the “chicken tax,” this measure has significantly impacted the American automotive industry and global trade. By effectively keeping European car manufacturers out of the U.S. light truck market, the tax paved the way for Ford’s F-Series to maintain its status as America’s best-selling vehicle for over four decades. As Donald Trump’s second term approaches, the “chicken tax” could provide a model for the next wave of protectionist policies, reshaping the global automotive market.

Trump’s Trade Vision and Impact on European Automakers

President-elect Donald Trump’s announcement of a proposed 10% baseline tariff on all imports has sent shockwaves through global manufacturing industries, especially in Germany. Few sectors are as vulnerable as the German automotive industry, where companies like Volkswagen, BMW, Mercedes-Benz, and Porsche have seen significant stock declines as investors anticipate the impact on U.S.-bound exports.

A 10% tariff passed on to consumers could add approximately $3,500 to the price of an Audi Q5—already a bestseller in the U.S.—making the American market even more challenging for European automakers.

A Leadership Void in Germany Amidst Economic Uncertainty

As German automakers grapple with the implications of Trump’s trade agenda, Germany faces its own internal political challenges. The recent collapse of Chancellor Olaf Scholz’s coalition government has left Germany’s leadership uncertain, raising concerns about how Europe’s largest economy will navigate potential trade disputes with the U.S. This political instability may complicate Germany’s response to Trump’s protectionist policies.

Hildegard Müller, president of the German Association of the Automotive Industry (VDA), highlighted the importance of economic ties with the U.S. “Germany remains a key production location for the U.S.,” she noted, emphasizing the need for German leaders to strengthen economic policies that foster transatlantic alliances.

Preparing for Tariffs: The Challenge for German Automakers

For German car manufacturers, Trump’s protectionist stance is more than a hypothetical threat. The U.S. is Volkswagen’s second-largest export market after China, and new tariffs could exacerbate challenges in an already strained global market. Volkswagen, for example, exported 400,000 cars to the U.S. in 2023 and faces cost-cutting pressures that may be intensified by tariff hikes.

Although BMW and Mercedes-Benz have manufacturing plants in the U.S., these facilities lack the capacity to offset production losses from increased import tariffs. BMW CEO Oliver Zipse remains cautiously optimistic, stating that the company’s U.S. production setup provides some “natural cover” against tariff impacts.

The Economic Dilemma for Germany

With over 780,000 jobs tied to Germany’s automotive sector, the consequences of U.S. tariffs could be severe. Automakers might face pressure to relocate production to the U.S., which could damage Germany’s industrial base and provoke union resistance. According to ING economist Rico Luman, this trend towards “regionalized production” could spell trouble for Germany’s economy.

The Threat of Higher Prices and Limited Consumer Choice

Trump’s plans are not limited to European automakers. The Detroit Big Three—General Motors, Ford, and Stellantis—also rely heavily on their Mexican production facilities for vehicles imported into the U.S. Should tariffs target Mexican imports, American consumers could face substantial price increases across a range of vehicles, not just those from foreign brands.

“Everybody hates taxes and tariffs,” says Adrian Mardell, CEO of Jaguar Land Rover, which exports a quarter of its output to the U.S. His comments reflect the apprehension felt across the industry as automakers assess their options.

A Shift Toward More U.S. Investment?

Trump’s tariff policies may drive foreign companies to increase investments in U.S. manufacturing to bypass import fees. For instance, Toyota might consider moving production of its Tacoma pickup truck from Mexico to San Antonio, Texas, if tariffs on Mexican imports are enforced. While Toyota has not confirmed this move, reshoring manufacturing is a likely trend that could continue under Trump’s policies.

Environmental Regulations and the American Auto Industry

In addition to tariffs, Trump has suggested plans to roll back regulations requiring emissions reductions. While this policy aims to support the American automotive industry, it could result in billions in lost subsidies for companies like General Motors and Ford.

The Chicken Tax’s Enduring Legacy

The “chicken tax” demonstrates the mixed results of protectionist policies: while they can benefit domestic industries, they often lead to higher prices for consumers. Trump’s tariff-heavy approach may reshape the auto industry in a similar way, potentially boosting U.S. jobs but at the expense of increased consumer costs and reduced choices in the marketplace.