What Do Chickens and Trucks Have in Common?
July 8, 2004In the 1960's the United
States exported chickens to the European Economic Community (the precursor
of the European Union) so successfully that the Europeans imposed a tariff
(a border tax) to limit the entry of American chicken imports and protect
their own chicken farmers. In retaliation, the US imposed border taxes on
goods that Europe sold to us including potato starch, brandy, and light trucks.
Although the trade restrictions on these other products were removed over
the years, the 25% tariff on pick-up trucks remains. Fortunately, SUVs and
mini-vans are excluded from this tax. But this exorbitant tax has halted any
significant foreign imports of light trucks. In 2003, the U.S. only imported
400 pick-up trucks from countries other than Mexico and Canada (which do not
face the 25% duty thanks to the North American Free Trade Agreement). A meager
$887,750 was collected in tariffs on light trucks last year. Large companies
such as Toyota and Nissan are able to get around this high tax by building
plants in the United States and manufacturing pick-ups here. The companies
shut out of the American light truck market are the small to mid-size companies
that are known for producing less expensive vehicles for budget-minded Americans.
This includes Isuzu, Kia, Hyundai, Suzuki and Mitsubishi. These companies
have not yet invested millions in manufacturing plants to build light trucks
in the United States and will not do so until they are able to test their
products in the American market. Thanks to the 25% tax on their products,
however, they cannot do so. What makes this tariff even more anachronistic
is that the company the tariff originally targeted, Volkswagen, no longer
produces pick-up trucks.
Nobody will find American manufacturers complaining about this tariff, however,
since the tariff not only protects their companies, but also allows them to
keep prices high because it limits competition. The result is that we Americans
pay $25,000 for a truck that should have cost $20,000. This extra $5,000 is
in addition to the 5 or 6% sales tax that most of us pay when we buy a new
vehicle. Consumers have no other choice but to pay the inflated price, because
our government gives us no real alternative. If this tariff were eliminated,
we would surely see the price of American pick-up trucks drop and a greater
variety of models from which to choose.
The Bush Administration has advocated free trade from the beginning and has
been proactive in negotiating a series of free trade agreements with a number
of countries. President Bush should go one step further and unilaterally eliminate
the 25% tax on light trucks. This tax is an irrelevant holdover from another
era and is simply bad trade policy. As consumers, we should be concerned about
hidden taxes that our government expects us to pay, an tariffs like this one
are a good example.
For more examples of how import tariffs raise prices and are, in fact, hidden
sales taxes, read CWT's recent study on the sales tax effects of import tariffs
by clicking here.