Living Economics

No Chicken Feet!
Chicken feet, long considered a waste product in the US, have become a profit center for the high-volume low-profit US chicken industry in the China export market. But this export trade is not exempted from political whims.

Chicken meat is a high-volume low-margin business in the U.S. Its "white" meat has long been considered to be an inferior good to the "red" meat of beef (see More Money, More Options). In other words, US consumers buy chicken only because it is cheaper than beef . But its fortune has turned first by consumer health concern about red meat (see The Rise of Chicken). Of late, its fortune has enjoyed another turn because of a special part of the bird.

Chicken feet have long been discarded or turned into dog food by the US industry until the latter part of last century. They are still seldom sold outside Asian-American grocery stores. Meanwhile, chicken feet are regarded as a culinary delicacy in China and Hong Kong which can easily cost as much as or more than chicken breast (aralchina.com).

So chicken feet have almost zero opportunity cost in the US but high opportunity cost China. But unlike the classic theory of comparative advantage (see Who Has Comparative Advantage), this vast difference in cost is not so much a result of differential productivity as a difference of cultural preference. Whatever the source of this comparative advantage in US chicken feet, here was still the perfect win-win trade deal where both the US and China could benefit.

Chicken feet may be a lowly US product, but they are no "chicken feet" in economic terms. Exports of American poultry totaled $4.34 billion in 2008. Of that amount, $854.3 million worth of chicken meat was exported to China and Hong Kong. Although these exports represented only less than 2 percent of total revenue by the American chicken industry, they are particularly profitable. About half of the chicken parts sold to China are wings and feet, which are worth only a few cents a pound in the United States. As delicacies in China, they fetch 60 cents to 80 cents a pound, a price that no other foreign markets come close to matching (nytimes.com). During the recent economic recession with rising feed prices and sagging restaurant demand, the profit from chicken feet exports is a lifeline for the US chicken industry (Freakonomics.com). On the other side, Chinese consumers get to enjoy the larger US chicken feet at more affordable prices.

There is an additional beneficial spillover to American consumers from the chicken export trade. Namely, it reduces the shipping cost of goods imported from China. Because the US imports more from than exports to China, many containers carrying goods from China return to China partly empty. By carrying chicken feet and other chicken parts on the return trips to China, the additional freight revenue allows the shippers to lower the freight cost of US big-box importers such as WalMart and Target. This is possible because the fixed cost of carrying empty containers can be spread over more chicken-laden freight. Indeed, carrying chicken products to China has propelled Savannah, GA into the third largest port in container shipments (Bloomberg.com) from relative obscurity.

This apple cart was, sadly over-turned by a 35% anti-dumping import tariff on Chinese tires in 2009 and a subsequent China imposition of more than 100% anti-dumping tariff on US export of chicken parts. As a result, the export of US chicken exports collapsed (Washingtonpost.com). The US president's decision on the tire tariff on Chinese tires was widely panned by the US press. It imposed a tariff on a segment of tires that the American tire industry has largely abandoned. So it is an empty gesture to the labor union while greatly upsetting China for its protectionist overtone. Chinese consumers will miss their imported culinary delicacy, but American consumers of low-end tires and the US chicken industry will bear the brunt of this empty protectionist move (Economist.com).

Nevertheless, US labor unions seemed to be quite happy on the whole to help return Mr. Obama to a second term in the president's office.

This story illustrates how mutually beneficial trade based on comparative advantages can often fall victim to political considerations.

Note:
  1. Update: According to a recent study, "the total cost to American consumers from higher prices resulting from the tariff on Chinese tires was around $1.1 billion in 2011. The cost per manufacturing job saved (an estimated maximum of 1,200 jobs) was at least $900,000 in that year. Only a very small fraction of this amount reached the pockets of tire workers. Instead, most of the money landed in the coffers of tire companies, mainly abroad but also at home." Hufbauer, G. C. & Lowry, S. April 2012. "US Tire Tariffs: Saving Few Jobs at High Cost." Peterson Institute for International Economics.
  2. Update: According to a recent study, "the total cost to American consumers from higher prices resulting from the tariff on Chinese tires was around $1.1 billion in 2011. The cost per manufacturing job saved (an estimated maximum of 1,200 jobs) was at least $900,000 in that year. Only a very small fraction of this amount reached the pockets of tire workers. Instead, most of the money landed in the coffers of tire companies, mainly abroad but also at home." Hufbauer, G. C. & Lowry, S. April 2012. "US Tire Tariffs: Saving Few Jobs at High Cost." Peterson Institute for International Economics.
  3. Update: The World Trade Organization ruled that China’s duties and tariffs on chicken legs and other parts violated WTO rules. China must drop the duties within 60 days, or appeal. Bloomberg.com. 8/2/2013. "Victory in China Chicken Case Seen Aiding U.S. Trade Wars".
  4. Update: The World Trade Organization ruled that China’s duties and tariffs on chicken legs and other parts violated WTO rules. China must drop the duties within 60 days, or appeal. Bloomberg.com. 8/2/2013. "Victory in China Chicken Case Seen Aiding U.S. Trade Wars".
References:
  • Economist.com. 9/17/2009. "Economic vandalism".
  • Aralchina.com. June 2011. "China chicken feet - the main market".
  • Washingtonpost.com. 12/16/2011. "U.S., China embroiled in trade spat over chicken feet".
  • Freakonomics.com. 12/9/2011. "The economics of chicken feet ... and other parts".
  • Time.com. 2/8/2010. "Chicken feet: A symbol of U.S.-China tension".
  • Nytimes.com. 9/15/2009. "Chewy chicken feet may quash a trade war".
  • Bloomberg.com. 12/6/2012. "Chicken-feet exports help Savannah lead U.S. port growth".
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