There was a time when foreign-manufactured pickup trucks were very popular in U.S. in 1960s; these pickup trucks are no longer seen in the U.S. market due to the ‘Chicken War’, as it came to be known. After World War II, chicken consumption in Western Europe, particularly in Western Germany, increased dramatically. The major portion of this imported chicken was coming from America, in retaliation, EEC imposed heavy tariff on American Chicken, as a result, U.S. lost nearly a quarter of its chicken sales in Europe.
Amidst this period, the foreign-manufactured pickup trucks began gaining popularity in the U.S. market. In response to the EEC tariff, U.S. government imposed a 25% tariff on trucks. Consequently, their sales dropped sharply in the U.S. market due to the price hikes. The Type 2 Van, which originally cost $2,100 in 1964, now sold for $525 more due to the tariff.
The Chicken War illustrates the far-reaching consequences of tariffs. Firstly, there is a myth that tariffs do not change the behavior of the domestic firms/industries if there is a curb in the influx of foreign goods. As soon as the demand rises for domestic goods, the prices go up, thus the price hike comes down to the consumers and causes a fall in demand. Consequently, the supply drops too leading towards economic deficit. Secondly, if industries use imported material for production, they have less comparative advantage as compared to their foreign counterparts due to costly input, their profit margins are squeezed, and the idea of tariff backfires. Third, tariffs are always retaliatory, if one state takes the initiative, the other side retaliates and it causes collateral damage with no winners in this economic warfare. Fourth, Tariffs are notoriously difficult to reverse, even decades later, the 25% tariff on trucks remains in effect in U.S. Despite these lessons, tariffs are still used as tools to influence state behavior.
Donald Trump adopted similar tariff tactics to alter China’s trade behavior in 2018 by imposing a 10% tariff on Chinese aluminum, a 30% tariff on solar panels and electric vehicles, and a 25% tariff on steel, among numerous other goods. However, this policy did not achieve much as China redirected its exports and imports to other countries. As an example, China started purchasing Soybean from Brazil, significantly causing losses to American farmers. Furthermore, the additional costs imposed by tariffs were passed on to American consumers resulting in reduced demand and supply, and declining manufacturing jobs.
Even though tariffs harmed the American economy more than China’s, Trump, who is set to take office in January 2025, for the second term, has pledged to impose more tariffs on China’s goods. While it is too early to predict the exact outcomes of Trump’s economic policy, his renewed focus on tariffs is unlikely to achieve his goal to curb China’s trade expansion.
While China has always relied on heavy exports to fuel its economic growth, this, however, has made China’s economy vulnerable to geopolitical tensions and trade conflicts. In order to avoid these stumbling blocks, President Xi Jingping introduced a new dual circulation strategy in his economic policy in 2020. The new strategy aims at reducing China’s reliance on exports and fostering a more self-reliant economy.
China has a vast domestic market of 1.4 billion consumers, and Xi Jingping, under his new economic strategy, wants to boost the purchasing power of this huge market to boost domestic consumption. In addition, Xi is prioritizing technological self-sufficiency, particularly in areas such as semiconductors and telecommunications. These sectors have faced significant restrictions from the U.S. and its allies, underscoring the need for China to develop its own capabilities.
However, the dual circulation strategy does not come without challenges. First, transforming a traditionally export-driven economy into one centered on domestic consumption requires significant structural reforms. Second, narrowing the income gap is essential for boosting domestic consumption as China continues to grapple with disparities in income. Third, China cannot entirely decouple from major trading partners like the U.S. and Europe. Maintaining a balance between reducing reliance and preserving essential trade relationships will require careful diplomacy and strategic foresight.
Regardless, China’s economic strategy is well calculated and forward-looking, by fostering self-reliance, boosting domestic consumption, and ensuring technological independence, China is in a better position to show resilience in the face of external economic shocks.
To conclude, the Chicken War and the ongoing U.S.-China trade conflict illustrate that tariffs may provide temporary protection for specific industries but often result in long-term economic harm. They frequently provoke retaliatory measures that deepen tensions and prolong conflicts. The significant tariffs imposed on Chinese imports have neither curtailed China’s economic rise nor compelled it to alter its trade practices. Instead, these measures have burdened American consumers with higher prices and limited choices.
Meanwhile, China has adapted to the challenges posed by the trade war by diversifying its trade partnerships and investing in a self-reliance strategy. The enduring nature of the Chicken War tariffs, still in place even six decades later, serves as a powerful reminder of the lasting consequences of protectionist policies. History continues to show that while tariffs may serve as short-term remedies, their long-term impact often proves counterproductive, highlighting the need for more sustainable and cooperative approaches to resolving economic disputes.
