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The Chicken Tax
How do chickens affect the way cars are sold? The short answer: Tariffs. They affect the way most imported goods are packaged, shipped and priced. Letâs see how đ
The Chicken Tax:
After WW2, there was a period of free trade between nations to rebuild post-war. Goods were imported and exported between countries freely. Eg. Americans loved importing German cars and the Germans loved American frozen chicken. However, the competitive American chickens made it difficult for the local German farmer to sell their chickens. To help the local farmers, the German government imposed a 50% tax on imported frozen chicken. That move ruffled American feathers, and the US retaliated by taxing German imports (ie. 25% tax on foreign commercial vans and pickup trucks). Volkswagon couldnât compete in America and Ford dominated the American truck market.
Tariff Engineering:
The Chicken Tax is still in effect today, and in a globalised economy with international production and supply chains, itâs hurting Ford too. Although itâs an American brand, Fordâs commercial vans are made in Spain to be imported back into the US. So, it becomes a foreign import. To get around this, Ford installs passenger seats to its US-bound commercial vans to pass customs, this would make the vans technically âpassenger vansâ. Instead of the 25% tax on foreign commercial vehicles, it is reduced to only 2.5% for foreign passenger vehicles. This is called âTariff Engineeringâ. Altering the productâs design for it to be classified at a lower tax rate.
Tariff Engineering Examples:
Converse adds a layer of soft felt in their sneaker soles, hence theyâre not shoes, theyâre slippers. (25% tax reduced to 2%) Pearl necklaces are imported unstrung. Individual pearls are unfinished products hence 60% luxury goods tax to 10% duty rate. Pringles are not potato chips, theyâre biscuits because they contain less than 50% potato, exempting them from the 17.5% UK VAT.
Tariff engineering is in pretty much every industry as the global economy is so intertwined. Itâs interesting to see companies legally use creative tactics to qualify for the lower applicable rates. So, if someone asks, âwhy did the chicken cross the road?â Itâs probably looking out for the foreign commercial vans that were once âmade for passengersâ.
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