Can someone explain if there's any logic at all to counting a countrys VAT as part of its tariffs? In my home country VAT is ultimately charged the end-customer and this happens regardless of the origin of the goods. How can this be a seen as a tariff?
Besides, isn't the "Use tax" most(?) American states have more or less equivalent in function?
Others pointed out that the tariff rate they are pointing to is actually just calculated based on trade imbalance. So the logic is that they have a number they want to get to and are throwing around terms that their constituents don't understand to make it sound reasonable
VAT is not a tariff, no one reasonable thinks it's a tariff but the US doesn't use the term VAT so enough people won't second guess it if trump says it's an tax on american goods
VAT is effectively a tariff though, because it disincentivizes import/trade with the US (and other foreign countries). Since the US has no VAT, it's leading to unfair competition.
VAT complicates the business environment for US companies operating in the EU, and it takes a major chunk of their margins. US doesn't have VAT and has a significantly easier business environment for EU businesses to operate in - leading to an unbalanced playing field.
VAT is just one component though. Remember that US largely subsidizes and sponsors the defense of EU, Ukraine, Taiwan, Japan, etc - but those countries have been giving less and less back, over the past years.
1) EU businesses have to deal with complicated sales tax arrangements that vary by state and municipality.
2) EU businesses have to operate in their own environment and also face the VAT. There is no protectionism here. The playing field with respect to VAT is balanced, regardless of which side of the pond is (...was) an easier business environment to operate in.
VAT complicates the business environment for EU companies operating in the EU too. You're demanding that American companies in the EU should be able to operate the same way they do in the US instead of complying with local laws, ie you're just demanding the right to bring your legal environment with you. Do you believe that foreign companies who open branches in the US should be exempt from US laws and be able to run themselves according to the law in their country of origin, at their US branches? I doubt it.
Completely false. Cost of VAT is passed on to consumers not met by companies and as EU companies pay VAT too it doesn't force US companies to lower prices and so harm their margins.
VAT applies equally to domestic and foreign companies. It's a tax.
Tariffs and barriers to trade are measures meant to incentivize production in the country imposing them. That's what free trade is meant to get rid of, that's why Trump is so keen on tariffs and likes them
If a company moved a production line to within the EU from outside because of VAT they'd still have to pay the same exact amount of VAT as they did before. It's just not an incentive in that sense
> Can someone explain if there's any logic at all to counting a countrys VAT as part of its tariffs?
There is no logic. VAT isn’t tariffs and is not discriminatory. In the same way as trade imbalance is not theft. It’s just Trump trying to find reasons to complain and present the US as a victim.
The only logic is that since the USA doesn’t have a VAT system, there is no way to do export VAT rebates.
> Export VAT rebates mean to refund the VAT paid in various domestic production stages to exporters. The purpose is to ensure that the prices of exported products are free of taxes in order to maintain a level playing field for international markets.
So that can’t exist at all for American exporters, since the USA doesn’t use VAT, their goods are taxed at a higher rate (as far as the exporters are concerned). It’s confusing, but Trump could have just asked for negotiations to get rid of this distortion.
I dont get it. VAT is end customer tax applied exactly once. The rebates exist so importers, suppliers, resellers, shops dont pay VAT multiple times. This applies to every product local or imported.
With special case of digital goods this for a looong time meant that software sold from outside EU over internet was around 20% (VAT) cheaper because VAT was ignored by the companies. That’s quite a big advantage especially for US. And a reason why EU wanted VAT to be applied equally. Many companies still ignore it but it’s illegal now.
I'm not sure I follow. When I read the rules for Norway [1] it appear the importer (in Norway) pay the VAT on the imported goods (as opposed to the the seller for domestic a domestic business). But it's nothing that indicates that this amount payed does not enter the ordinary VAT accounting. Ie.: the amount payed will in effect simply be forwarded to the end-customer, just like domestic goods. I don't understand how a "VAT rebate" would come in play here?
> Export tax rebates involve the return of indirect taxes that have been levied on inputs used to manufacture goods that are eventually exported out of the country. These taxes can include VAT, ...
So this seems to be about imported goods being more expensive in US, not the other way around? Ie. if a US company import some product from Norway they have to pay VAT to Norway? And if they subsequently sell a derived product back to Norway they do not get refunded this VAT?
So let's say you make something in Europe, you pay VAT on the inputs, when it is sold to someone, they pay VAT, you take the VAT that the consumer paid and deduct the VAT you already paid to make the thing, sending the rest to the government, who only gets 20% on the thing, it doesn't get 20$ + 10% + 5% + .
You have to keep receipts of the VAT you paid to make the thing to do this, Europe doesn't like sloppy paper work, and rightfully so. Except...America doesn't have VAT, so there are no VAT rebates, they pay taxes on inputs and the consumer pays 20% on the finished item. But you are also right: if Norway exports a thing to the USA, they aren't getting a VAT rebate either from the sales tax paid on the thing in the states (or does Norway get a VAT rebate on things exported to non-VAT countries? I'm not sure).
But really, VAT is a better way, you avoid double taxation. The US should really just adopt it and make their VAT system compatible with Europe.
So that make short of sense, except according to this
"Selling goods to customers outside the EU
If you sell goods to customers outside the EU, you do not charge VAT. However, you may still deduct the VAT that you paid on related expenses, such as for goods or services purchased specifically to make those sales."
So the inputs are not more expensive to American importer. Yes the European company is compensated for the VAT they paid on an input, but this is a tax to begin with. Which the US companies not pay. So this is not unfair to the US company..
VAT countries apply VAT on all domestic transactions (and that includes imports).
VAT countries do not apply VAT on exports because they _rightly_ assume that the importing country will apply VAT or whatever sale tax equivalent is in place in their territory.
This is not a distortion. There's really no other way to make it work.
Other thing is that when you’re VAT registered, as a buyer of parts you reclaim VAT on things you purchase as inputs. So the tax on the final product is what matters.
With US sales taxes you accrue tax all the way up the chain.
In many states in the US, if you go and buy materials, as a business, you pay a sales tax. There are exemptions and partial rebates, but there's nothing across all industries, and it varies by state. So if you were a farmer you might find you were exempt on fertilizer and tractors but not on a pickup truck.
That's different to a VAT, because there, as long as you're a registered business for VAT purposes, all purchases you make are exempt from VAT - either you don't pay it when you purchase and are invoiced by a business, or you can claim it back if you keep receipts. Companies have to register for VAT when revenue hits a certain amount; here in the UK it's £85k for e.g.
>either you don't pay it when you purchase and are invoiced by a business
As a business you pay VAT when you purchase. And you collect VAT when you sell.
Then you pay to the government the difference between collected VAT and paid VAT.
That's what the "Value Added" part means.
No, if you provide a VAT number, in business to business transactions, companies will not normally charge VAT in the first place, so you don't pay it when you purchase in many cases as a business.
However if you go into something aimed at consumers, and make a purchase, they're normally not set up for this, which is why you're able to reclaim when you have paid it.
> So if you were a farmer you might find you were exempt on fertilizer and tractors but not on a pickup truck.
There are items that generate a non-deductible input tax in VAT countries (often entertainment items or cars).
But usually, those will be the exception and deductible would be the default.
Well, they are saying, EU market is harder to operate in (because everyone pays VAT) than the US market (no VAT, also lower regulatory barriers it seems), and also EU firms have a "home advantage" benefit, for example the regulation is written for their benefit.
So US is easy to sell in for everyone, EU is "hard" to sell in for everyone, but maybe less so for EU car makers. So there is something to this argument, it's not entirely without merit.
Additionally, US car tariff used to be 2.5%, whereas EUs is 10%. The imbalance is short in justification, though across the board, EU and US charge each other similar tariff amounts altogether, so there are other areas where the US charges more.
Whether that justifies broad brush enormous tariffs in everything, and whether US does the same in other industries (defence for example) is an exercise I leave for the trader.
> EU market is harder to operate in (because everyone pays VAT)
Surely it's not exactly rocket-science to handle VAT...
Explain how it's an disadvantage for an US exporter compared to a domestic company... Give an example instead of handwaving. I'm willing to admit I don't understand all the details, but you wont convince me using this vague statement: "harder to operate in (because everyone pays VAT)" ...
If the US adjusted selected tariffs to protect selected industries the outcry wouldn't be the same, so I'm not very interested in specific examples where the US have a lower tariff than the "counterpart".
> So US is easy to sell in for everyone, EU is "hard" to sell in for everyone, but maybe less so for EU car makers. So there is something to this argument, it's not entirely without merit.
It's completely without merit. Do you really think US regulation isn't written for the benefit of US companies? It is!
In any event US cars don’t sell in Europe for a range of reasons including size and fuel consumption. Those stricter rules apply to everyone and I don’t think it’s beyond US manufacturers to meet those rules for cars sold in European markets.
If you’re saying that Europe should loosen its safety rules just so the US can export more cars then the answer will certainly be no.
I am not from the US but calling out a specific race, besides a specific gender, seems really messed up. You know, just swapping the races you don't like doesn't make you not a racist. Can't you guys get past the "race" issue, please?
> calling out a specific race, besides a specific gender, seems really messed up
One of the bright notes of the last few elections has been the racial depolarisation of politics in America.
That said, we’re not in the endgame. You can still predict partisan (and subpartisan) affiliation by race plus one or two factors. Which is why we poll on that basis. In this case, there is one demographic that provides MAGA economic policies with oxygen. It falls along a specific race, gender and education axis—I don’t think it’s inappropriate to comment on that.
> just swapping the races you don't like doesn't make you not a racist
Sure. I don’t see how pointing out what a specific demographic did (qualified with a partisan lens) is derogatory.
No, but at this point there should be mass protests. Deporting innocent people to El Salvadoran prison for life without due process? If people aren't (at least figuratively) up in arms about that, then what?
Protests in blue cities will do nothing right now. We need to field candidates in primaries against complacent democrats. And we need protests in red districts (and apparently at Tesla dealerships, given that’s setting Musk off).
Oh, I’m not letting them off the hook. I’m just saying that these policies are broadly unpopular outside a specific slice of the Republican Party. That’s relevant to lawmakers wondering about their job security in 2026.
That is missing the big picture. The US has a debt & deficit problem. There is no consensus policy on how to deal with it [0] and every slice of the population wants to handle it differently (generally by picking a different slice of the population to bear the burden).
The federal government tried printing money and that was a big contributor to the Biden administration getting voted out. Somewhat unfairly, but oh well. It wasn't working very well and the political appetite isn't there right now to be associated with monetisation.
Reducing the size and scope of government is being debated, but realistically the appetite doesn't seem to be there either.
Now the administration are going to try taxing foreigners. It probably won't go well either.
This is the US political process seeing a major problem and cycling through options to check for alternatives other than raising taxes on a voting constituency. None of the revenue raising ideas have widespread support - they all harm the economy and they're all going to have specific subsets of the population that support them. Pointing out a particular subset isn't particularly useful.
[0] I suspect there is a consensus on the debt part - don't pay it - but that still leaves the deficit to sort out.
> This is the US political process seeing a major problem and cycling through options to check for alternatives other than raising taxes on a voting constituency
It’s the political process using a known problem to distract people. There is no intent to not take any new revenue or budget savings and convert it into more spending and/or tax cuts. We don’t have anyone in the government serious about deficit reduction. That’s clear in the policy proposals being put forward.
A tariff is a tax specifically on foreign goods. It is an artificial barrier to trade used to make domestic products more competitive. VAT is a tax applied to all products equally, so it isn't a trade barrier. You might be able to construe a convoluted argument that it is easier for domestic companies to work through domestic regulation, but that's pretty weak.
The US seems to have simply taken the value of the trade deficit with a country, divided it by total imports from that country, and used that as the tariff percentage. So in their logic, wherever there is a trade imbalance, this must be explained by barriers to trade. So in a sense this is also a repudiation of the core hypothesis of global free trade as an ideology: That, if countries trade freely with one another, they can specialise on certain production and a virtuous cycle makes everyone richer. In Trump's ideology, trade is a zero sum game, and having a trade deficit means that you are losing.
European VAT makes it difficult for American companies to compete in Europe. US has no VAT, making it easier for European companies to compete in America...
Combined with the fact that the US is the de-facto largest benefactor of NATO, Ukraine, UN, etc... then the US is getting shafted by the EU and Trump is correct in seeking ways to mitigate that.
Applying this economical pressure on the EU is a valid strategy, IMHO.
European companies pay VAT in Europe.
American companies pay VAT in Europe.
European companies do not pay VAT in US.
American companies do not pay VAT in US.
> "American companies pay VAT in Europe. European companies do not pay VAT in US."
VAT is a significant income stream for the EU. They take that money and re-invest it into their economy in an uncompetitive manner, whilst constantly propping up more anti-competitive regulation (which harms American businesses).
Have you looked at EU countries budgets? We "invest" in social security and public health systems. Our defense budgets go in large part to buy arms from the US, and Musk complains if we decide to prop up Arianespace for some defense satellites while threatening to cutoff Starlink for Ukraine paid by Poland. Have you looked at how much money your DoD sends abroad (and how much of it is pork)? You're literally telling us to be more protectionist, and then expect something different.
I don't really care what you invest the money into, the point is that the VAT is a mechanism which messes with the concept of a free global market and it leads to unfair competition and an unleveled playing field. If you combine it with other factors (such as the fact that the US is the sole guarantor of Europe's defense) - the US is in the right for challenging the European economy.
US sales tax is *significantly* lower than VAT, varies by state (allowing for all kinds of loopholes), and applies to fewer categories of products and services sold. No point arguing this, VAT is a protectionist and anti-competitive tax and the US has a right to challenge it.
Why are you arguing this point? It’s de-facto cheaper and easier for European companies to compete in the American markets, than the other way around.
How is it protectionist if the European companies also pay it?
You are arguing about rules that apply to all companies competing in Europe and then extrapolating that to say that “American companies competing in Europe” are mistreated.
If I read you correctly you're saying that a tax imposed on the consumers in a country benefits the country as a whole and thus aslo the companies operating in that country, which make it unfair to foreign companies? Is that really what you're arguing?
We started this conversation with you seemingly not understanding how VAT messes with free trade, and it sounds to me like you're in a different place now. Feel free to keep arguing over semantics all day long, I'll leave it at that.
My place hasn’t changed at all. Everything I’ve said is internally consistent. You are welcome to view any form of taxation as an impediment to “free trade” but that’s not how competition works. Feel free to continue believing that taxation is inherently protectionist, I’ll leave it at that.
There's "taxation", and then there is "taxation". VAT is an incredibly aggressive and overreaching version of "taxation", and it has severe implications on free trade with Europe. I'm not sure why you won't acknowledge this.
And by the way - plenty of economists view taxation as impediment to free trade.
I’m not sure why you won’t acknowledge that a tax that affects domestic and foreign companies equally is not protectionist. But here we are.
I’m not saying that taxes don’t have an impact on the economy, or the business environment, or growth, or profits…of course they do! Maybe the tax will lower demand which makes investment less appealing, and so less investment from Americans happens as a result. But there's also less investment from the Europeans in that case! And most of all, it has nothing to do with the competitiveness of American products in the European market, because the European products face the same tax. VAT does not distort the relative price between European and foreign products.
If you want to say that tax revenue is used for subsidies that are anticompetitive — well money is fungible, you can’t blame that specifically on VAT revenue, and you should be making an argument against subsidies, not the VAT. But then you will need to address the many ways in which the US subsidizes its own industries.
For those who don't follow the link, here's an extract from the article explaining the core situation:
Imagine a car that costs $30,000 to produce before tax. Now compare four scenarios:
1) BMW sells the car in Germany (domestic sale): Germany’s VAT (let’s say 20% for simplicity) is added on the final sale. The German consumer pays 20% VAT, i.e., an extra $6,000, for a total price of $36,000. BMW forwards that $6,000 to the German government as VAT.
2) BMW exports the car to the U.S.: Since the car is exported, BMW does not charge German VAT. Any VAT BMW paid on parts or inputs is refunded by the German tax authority. The U.S. buyer pays the $30,000 price, and since the U.S. has no federal VAT, there’s no equivalent federal tax on that sale. (A state sales tax might apply at the point of sale, but we’ll come back to that.) The key point: the German government collects no VAT on an item consumed in the U.S.. This makes complete sense because that car’s being enjoyed by an American buyer, not a German resident.
3) GM sells the car in the U.S. (domestic sale): The U.S. has no VAT, so the American consumer pays $30,000 (ignoring any state sales tax). No federal consumption tax is collected. (In states with a sales tax, the consumer might pay, say, 7% extra to the state government, but again, the federal treatment is no tax.)
4) GM exports the car to Germany: When the car arrives in Germany, it faces the same 20% VAT as any car sold in Germany. So a German customer buying the American-made car pays $30,000 + $6,000 VAT = $36,000. That $6,000 goes to the German government. From GM’s perspective, it doesn’t owe U.S. tax on that export sale (since the U.S. doesn’t tax exports of goods), but its product will bear German VAT when consumed in Germany.
What outcome do we have here? In Germany, both the BMW and the GM car cost the same $36,000 after tax, and the German government collects VAT on both. In the U.S., both cars cost $30,000 before any state sales taxes, and the U.S. government collects no federal consumption tax on either. Each country taxes consumption within its borders—no matter where the product came from—and does not tax consumption outside its borders. This is precisely the goal of destination-based taxation: neutrality. Consumers in each country face the same tax on a given product, whether it’s domestically produced or imported. And neither country’s producers carry their home consumption tax as a “ball and chain” when they go compete in foreign markets.
US formally don't have VAT, when most other developed countries have.
As I know, US states few decades spent on talks about implement VAT, but have not achieved agreement yet.
For equivalent, most US states have trade tax, could be returned with set of rules.
So, on some abstract level it could be considered as far equivalent of VAT, which is also could be returned with set of rules.
Besides, isn't the "Use tax" most(?) American states have more or less equivalent in function?