The people above got it right. The phrase really did work as a way to introduce a naive character at the start of a story - like "the Chukchi guy doesn't get city stuff, so he messed something up." The joke itself wasn't directly aimed at Chukchi people as a nation, more like it was a generic fairy-tale character, kind of like Ivan the Fool. During Soviet times there were lots of these cycles of jokes about different nationalities, and the Chukchi, being distant and exotic for most people, were perfect for the role of the simpleton.
But here's the thing - the structure of these jokes is still built on the stereotype of a "savage from the North," even if it wasn't originally meant as a vicious insult. Over time the phrase just became a cliché that people use without thinking about the context. If you meet Chukchi people, I wouldn't recommend throwing that phrase at them - in 2026 it just sounds tasteless and like something from way back when. People argue about it on social media because it's a thin line: technically it's not some scientific definition of an entire people, but using jokes like that "to their face" or often - that's still uncool and rude.