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That 25% U.S.A. import tariff on all pickups and fancy SUVs costs you big money, because it stops foreign competition

Yet another truck ad? We just had one – only five minutes ago.

Do you ever wonder why American auto manufacturers rarely run tv ads for passenger cars, yet flood us with massive commercial schedules for pickups and big SUVs?

Follow the money.

For American vehicle manufacturers, the money is in pickups and other so-called light trucks, like SUVs.

25% tariff kept it out of 1966 USA showrooms

The primary reason: virtually no foreign competition, because of a 25% tariff on imported “light trucks” enacted in 1964, as the response to tariffs placed by France and West Germany on importation of U.S. chicken. In short, the “Chicken Tax.”

The tax requires a pickup truck made in Japan or elsewhere – that should sell here for $30,000 – will be hit with a $7,500 (25%) tariff, and instead cost you $37,500.

Only light trucks made in North America are exempt.

Automakers have enjoyed this industry protection from competition for 55 years, and the tariff is still imposed. By comparison, passenger cars only face a 2.5% tariff.

You can’t compete with a 25% price advantage, so foreign manufacturers don’t send light trucks into America, and companies like Chrysler, GM and Ford have near-monopoly control of the market.

U.S. manufacturers make much more profit selling pickups, and have neglected our car market. Most passenger autos sold in American are made by foreign companies – Toyota, Honda, Hyundai, etc.

For the record, other nations impose a 10% tariff on cars we produce, which is another reason for our automakers not to invest in cars, versus light trucks.

So, what’s the big deal that a few pickup trucks made here are very overpriced?

It’s not a “few” trucks.

In 2018 Americans bought 11,786,069 new light trucks, and only 5,488,181 new passenger cars – proof that you can convince the public to drive trucks instead of cars through heavily advertising them and rarely mentioning autos.

To make things worse for consumers, NAFTA allows Mexico and Canada to build cars and light trucks, and then export them to us with no tariffs. The Japanese pickup that faces a $7,500 tariff can’t compete with a Ford or GM truck built in Mexico.

NAFTA means manufacturers can have the best of both worlds – a 25% tariff advantage on their “competitors”, and an underpaid labor force (minimum wage 59 cents an hour) in Mexico to build these trucks.

Fair trade this isn’t.

Remember those 5,488,181 new passenger cars sold in the U.S. last year? Guess where they came from?

  • Mexican plants from 13 automakers produced 4.2 million cars in 2018, the majority of which were imported by the U.S.
  • Mexico also exports 90 percent of its OEM car parts to the U.S.

It’s no surprise that foreign automakers have moved plants to Mexico to allow tariff-free exporting to the U.S. of both trucks and cars.

These are the 39 new car and truck models currently built in Mexico, and exported with no tariffs to the U.S. (all plant and production data is from Automotive News):

  1. Audi Q5
  2. BMW 3-series
  3. Chevrolet Blazer
  4. Chevrolet Cruze
  5. Chevrolet Equinox
  6. Chevrolet Silverado 1500 Crew Cab
  7. Chevrolet Trax
  8. Dodge Journey
  9. Fiat 500
  10. Ford Fusion
  11. Ford Transit Connect
  12. GMC Sierra 1500 Crew Cab
  13. GMC Terrain (certain models)
  14. Honda Fit
  15. Honda HR-V
  16. Hyundai Accent
  17. Infiniti QX50
  18. Jeep Compass
  19. Kia Forte
  20. Kia Rio
  21. Lincoln MKZ
  22. Mazda 3
  23. Mercedes-Benz A-class
  24. Nissan Frontier (certain models)
  25. Nissan Kicks
  26. Nissan Sentra
  27. Nissan Versa
  28. Nissan Versa Note
  29. Nissan NV200 Cargo
  30. Ram 1500 Regular Cab
  31. Ram 2500/3500/4500/5500
  32. Ram ProMaster
  33. Toyota Tacoma
  34. Toyota Yaris
  35. Volkswagen Beetle
  36. Volkswagen Golf
  37. Volkswagen Golf SportWagen
  38. Volkswagen Jetta
  39. Volkswagen Tiguan

The trend to fewer cars and more trucks on our highways is evident when you compare 2018 to 2017 sales.

 Type 2018 2017 Y-o-Y
Jan.-Dec. Jan.-Dec.
Passenger Cars 5,488,181 6,318,061 -13.10%
Light Trucks-Pickup, SUV 11,786,069 10,912,375 8.00%
Total 17,274,250 17,230,436 0.30%

While nearly all politicians and the U.S. Chamber of Commerce whine about the possibility of President Donald Trump imposing a 5% tariff on Mexico in exchange for more cooperation at the border, not a word on the Chicken Tax.

As usual, the slick characters have found devious ways to trick the system from time to time, avoiding the 25% levy.

For example, Ford – not satisfied with its 25% bonus tariff protection – imported its first generation Transit Connect light trucks as “passenger vehicles” to the U.S. from Turkey. Wikipedia notes that the company:

…immediately stripped and shredded portions of their interiors (e.g., installed rear seats, seat belts) in a warehouse outside Baltimore.

To import vans built in Germany, Mercedes disassembled them and shipped the pieces to South Carolina, where American workers put them back together in a small kit assembly building.” The resulting vehicles emerged as locally-manufactured, free from the tariff.

As you might expect, the new NAFTA set for a vote in Congress this summer, continues to guarantee no tariffs on “light trucks” from Mexico and Canada, while the rest of the world pays 25%.

Categories: fair trade, NAFTA, Trade

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