German Chickens, Pickup Trucks, And De-Escalating The U.S.-China Trade War The U.S. has been pushing China to lower its high 25 percent tariff on imported cars, but most countries zealously protect their domestic auto markets — including the United States itself.
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German Chickens, Pickup Trucks, And De-Escalating The U.S.-China Trade War

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German Chickens, Pickup Trucks, And De-Escalating The U.S.-China Trade War

German Chickens, Pickup Trucks, And De-Escalating The U.S.-China Trade War

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MARY LOUISE KELLY, HOST:

Let's look at another flash point in this trade dispute with China - cars. China is the biggest car market in the world and one of the most lucrative. It's also one of the toughest to crack for foreign manufacturers. President Trump has called out China for its high tariffs and barriers to entry, yet China is not alone in protecting its domestic automakers. The U.S. does it, too, as NPR's Sonari Glinton reports.

SONARI GLINTON, BYLINE: China really doesn't export cars to the U.S. Mary Lovely of the Peterson Institute for International Economics says, until now, Chinese cars haven't been good enough for the U.S. market, but that is changing rapidly.

MARY LOVELY: And so we see on the horizon that China may be able to do that, and that's a scary proposition. And now we're saying, let's see, is it really fair that they have these barriers in their own market?

GLINTON: But at the same time, we have...

LOVELY: We do.

GLINTON: (Unintelligible).

LOVELY: Yes, we haven't exactly (laughter) - we haven't exactly examined our own house. Yes, we do on light trucks. We do.

GLINTON: Now, Lovely is referring to what's called in the car business the chicken tax - yes, chicken tax. Now, this started with a trade dispute between the U.S. and Germany in the early '60s over frozen chicken parts, called the chicken wars. Now, my colleagues at Planet Money loved the chicken wars so much that they made a short film.

(SOUNDBITE OF ARCHIVED BROADCAST)

ROBERT SMITH, BYLINE: You want to tax our chicken? Fine.

(SOUNDBITE OF MUSIC)

SMITH: Fine. We will find some German things that we can tax. So in 1963, the U.S. goes and puts a 25 percent tariff on foreign trucks. That includes commercial vans, light trucks and regular, old pickups. And Germany wasn't the only one affected. The U.S. applied it to all foreign-made commercial vehicles.

GLINTON: Now, the tax on frozen chicken - that went away. But the 25 percent tariff on foreign trucks has not. And this would all be kind of funny if it weren't for consequences.

LOVELY: And it was a tit-for-tat situation, similar to what we're seeing right now between the United States and the Chinese.

GLINTON: Again, Mary Lovely.

LOVELY: Unfortunately, that truck tax became quite popular. And manufacturers came to depend on it to maintain healthy profit margins, and so it just never went away.

GLINTON: And Lovely says the truck makers don't want to give up their advantage.

LOVELY: And so they're not going to let that go easily. If it becomes a case where we are serious about asking the Chinese to open up their market further in autos - say, by reducing their 25 percent tariffs on full vehicles that are exported to the Chinese market - then we're going to see some pressure on that 25 percent truck tariff that came out of the chicken wars.

GLINTON: The Chinese government recently threatened to double their tariffs on imported SUVs to 50 percent. And the irony here is that the biggest losers could be German carmakers, like BMW and Mercedes, that build their SUVs in the U.S. - in places like Spartanburg, S.C., and Tuscaloosa, Ala. Rebecca Lindland is with Kelley Blue Book, and she says that would hurt American workers in the South.

REBECCA LINDLAND: They'll have to cut down their exports, which means cutting down the plant production, which means cutting staff, cutting wages - cut, cut, cut. That's all you see. That's all I see in the future if this goes into effect - is cuts.

GLINTON: Now, there's a lot of trash talk in trade disputes. And China's President Xi Jinping - this week - lowered the temperature. He says that he's open to reducing tariffs on imported cars. And lowering those barriers, though, won't come without a cost, so China and every country that builds cars will be eyeing the chicken tax. Sonari Glinton, NPR News.

(SOUNDBITE OF DJ MITSU THE BEATS' "A LITTLE PIANO")

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