Tuesday, September 22, 2009

The Chicken Tax

The Wall Street Journal today has an article about a tariff in the auto industry that dates back to the 60s. It goes back to a dispute with Europe when Europe imposed high tariffs on imported chicken. The U.S. retaliated with a tariff on foreign-made trucks and commercial vans. The tariffs are still in place. Delivery vans imported to the U.S. face a 25% tariff, while passenger vans face a tariff of 2.5 percent. So, Ford produces a van in Turkey, adds rear side windows and some rear seats and ships them to the U.S. Once here, the rear seats and rear side windows are removed. By doing this, they spend more money but save even more taxes.
George Stigler noted that economists don't have influence on politicians. As proof he offered tariffs. Almost all economists think tariffs are bad but tariffs are still ubiquitous. The chicken tax is a reminder that once a tax or tariff is imposed, it is difficult to get repealed.

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