Trump cites 'chicken tax' on imported light trucks to justify car tariffs in warning to GM – but ignores how Ford and Mercedes get around it

  • President Trump has been railing against General Motors ever since it announced the closure of U.S. auto plants and worker layoffs
  • He's now threatening to expand the 'chicken tax' to the auto industry
  • He argues it would help build more cars in America and keep GM plants open
  • But auto makers fear such a move will raise costs and start a trade war
  • The 'chicken tax' is a Cold War-era tariff on light-duty truck imports
  • Some automakers - like Ford and Mercedes - have found ways around it 

President Donald Trump on Wednesday continued his rant against General Motors and issued a new warning: a threat to expand the 'chicken tax' from its tariffs on light-duty trucks to cars and auto parts.

Trump argued that the expansion of the Cold War-era tax would ensure more cars would be built in the United States and that GM 'would not be closing their plants.'

'The reason that the small truck business in the U.S. is such a go to favorite is that, for many years, Tariffs of 25% have been put on small trucks coming into our country. It is called the 'chicken tax.' If we did that with cars coming in, many more cars would be built here.....

.....and G.M. would not be closing their plants in Ohio, Michigan & Maryland. Get smart Congress. Also, the countries that send us cars have taken advantage of the U.S. for decades. The President has great power on this issue - Because of the G.M. event, it is being studied now!,' he wrote in a pair of tweets. 

President Trump has been railing against General Motors ever since it announced the closure of U.S. auto plants and worker layoffs

President Trump has been railing against General Motors ever since it announced the closure of U.S. auto plants and worker layoffs

He's now threatening to expand the 'chicken tax' to the auto industry

He's now threatening to expand the 'chicken tax' to the auto industry

He argues it would help build more cars in America and keep GM plants open

He argues it would help build more cars in America and keep GM plants open

The chicken tax is a 25 percent tariff placed on imported light-duty trucks in the U.S., which was initially created in response to France and West Germany's taxes on imported chicken from the U.S.

Started by President Lyndon Johnson, the original tax included potato starch, dextrin, and brandy. Those were eventually dropped, leaving the tariff on light-duty trucks to protect U.S. automakers from car makers overseas. 

Trump has threatened in the past to increase tariffs on cars and auto parts.

But the auto industry objects to the proposal out of fears it would increase production costs in the United States and launch a trade war that would decimate their industry.

The administration had appeared to sideline the idea but it could revive a move after GM's startling announcement, which rattled the industry and gives the president some potential political problems.

And Trump took to Twitter on Wednesday to tout proof his tariffs work, using the steel industry as an example.

'Steel Dynamics announced that it will build a brand new 3 million ton steel mill in the Southwest that will create 600 good-paying U.S. JOBS. Steel JOBS are coming back to America, just like I predicted. Congratulations to Steel Dynamics!,' he tweeted.

Steel Dynamics, a Fort Wayne, Ind.-based company, said on Monday it was investing  as much as $1.8 billion to construct a new steel mill in the southwestern U.S. 

The new mill - expected to begin construction in 2020 - would create 600 new 'well-paying' jobs, the company said.

Earlier this year, President Trump imposed 25 percent tariffs on steel imports in order to boost the industry. 

Trump has been railing against GM ever since the U.S. automaker announced on Monday it would close five auto plants and put 14,700 people out of work in Detroit, in Ohio, and near Toronto in a move designed to cut costs.

But the 'chicken tax' may not be the answer as some automakers had found a way around its tariffs.

Ford, for example, shipped some of its delivery vans as 'wagons' with seats and windows in the back.

Upon arrival in the U.S., those items are ripped out.

While the process costs the company hundreds, the import tax falls dramatically to 2.5 percent from the 25 percent under the 'chicken tax,' saving the car company thousands of dollars.

Mercedes-Benz was building complete vans in Germany, disassembling them, shipping them in pieces to the United States, where they are reassembled by American workers and become 'locally made' - thus not falling under the 'chicken tax.'

GM announced plant closures and layoffs on Monday

GM announced plant closures and layoffs on Monday

Trump touted the success of his steel tariffs in helping that industry

Trump touted the success of his steel tariffs in helping that industry

Trump has threatened other punitive measures against GM.

He threatened to yank subsidies for electric cars – as GM seeks to reconfigure its supply chain, jettison unpopular models, and refocus on vehicles it thinks will sell in the future. 

'Very disappointed with General Motors and their CEO, Mary Barra, for closing plants in Ohio, Michigan and Maryland. Nothing being closed in Mexico & China,' Trump tweeted Tuesday while a televised White House press briefing was going on.

'The U.S. saved General Motors, and this is the THANKS we get! We are now looking at cutting all @GM subsidies, including.... for electric cars,' he continued. 

Trump also told The Wall Street Journal that the company should stop making cars in China, and instead bring its American factories up to full capacity. 

'They better damn well open a new plant there very quickly,' the president said, adding: 'I love Ohio.'  

GM will stop producing cars and transmissions at the plants through 2019. In all, six car models were scrapped - the Chevrolet Volt, Chevrolet Cruze, Chevrolet Impala full-size car, Cadillac XTS, Buick LaCrosse and Cadillac CT6.

This leaves the company with nine remaining car models.

 And the Cadillac CT6 will be killed off in the U.S. after mid-2019, though it will continue to be sold in China.

Trump said he spoke Monday with GM's CEO, Mary Barra, and 'I told them, 'you're playing around with the wrong person'.'

He told reporters as he left the White House for a pair of political rallies in Mississippi that the United States 'has done a lot for General Motors. They better get back to Ohio, and soon.' 

The president won the Buckeye State by 8 percentage points in 2016; his re-election push is likely to focus on a strengthened economic recovery. 

Given Democrats' built-in advantages in the Electoral College, the proportional voting scheme that actually elects U.S. presidents, it's difficult for Republicans to win without prevailing in Ohio.

Light duty trucks are protected by tariffs under what is known as the 'chicken tax'

Light duty trucks are protected by tariffs under what is known as the 'chicken tax'

GM claims its moves will save company $6 billion

GM claims its moves will save company $6 billion

In addition to trimming its workforce, GM said Monday that it would eliminate some models whose sales have underperformed expectations.

The reduction includes 8,100 white-collar workers, some of whom will take buyouts and others who will be laid off. Most of the affected factories build cars that won't be sold in the US after next year. 

They could close or they could get different vehicles to build. They will be part of contract talks with the United Auto Workers union next year.

About 6,000 factory workers could lose jobs in the US and Canada, although some could transfer to truck plants.

The plan will help save the company $6billion by 2020, according to GM. 

 

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