Do value added taxes (VATs) constitute trade barriers?
Trump complains about non-trade barriers like the EU’s and Mexico’s value added taxes, calling them trade barriers.
The Tax Policy Institute explains A Value Added Tax Is Not a Trade Barrier.
Yes, Mexico has a VAT and the United States does not. And VATs around the world are border adjustable – exports are exempt and imports are taxable. But that does not give Mexican producers a leg up over their US competitors.
There is a simple reason for border adjustability. A VAT is meant to be a tax on consumption. Mexicans pay the same Mexican VAT on taxable goods and services they buy in Mexico no matter where they are produced. At the same time, no Mexican VAT is imposed on goods or services consumed outside of Mexico, regardless of where they are produced.
Of course, the United States has no national sales tax. We do, however, impose federal excise taxes on goods such as tobacco products, alcoholic beverages, and motor fuels. And those taxes treat traded goods the same way as other countries’ VATs. The cigarette excise tax, for example, applies to imported cigarettes, but not those exported by U.S. tobacco companies. State retail sales taxes in the United States work the same way: They apply to domestic consumption of taxed products from all sources, but not to exports.
A VAT does not favor one country’s producers over another’s. Trump’s claim that Mexico’s VAT gives its producers an advantage over American competitors is simply wrong.
Do Value-Added Taxes Affect International Trade Flows?
Trump claims they do. He is wrong.
Please consider Evidence from 30 Years of Tax Reforms by the American Economic Association.
Value-Added Taxes (VATs) have become the most common form of consumption taxes in the world, rapidly replacing tariffs as well as sales and excise taxes.
More than 80% of the world’s countries have adopted a form of VAT. The academic consensus is that adjusting VATs at the border – by levying VATs on
imports but exempting exports – does not distort trade flows as long as imported
goods are subject to the same VAT rate as domestic goods.For this reason, VATs, as they are currently implemented, are considered to be trade neutral, and the World Trade Organization (WTO) allows border adjustment of VATs, while it does not allow border adjustment of direct taxes (i.e., payroll taxes, income taxes, etc.) and strictly regulates tariffs.
The European VAT is Not a Discriminatory Tax Against US Exports
The Tax Foundation explains The European VAT is Not a Discriminatory Tax Against US Exports
The Trump administration has once again floated the idea of “reciprocal” tariffs on foreign countries.
When discussing trade with the EU specifically, White House deputy chief of staff, Stephen Miller, added a new policy grievance to the mix: value-added taxes (VAT).
“Did you know when you ship a car from the US to Europe, if they let it in at all because they have many nontariff barriers, between the VAT and duties, that car is taxed at 30%? The German car—or a European car sent the America is taxed at 2.5%—or basically 0.”
His statement assumes that a VAT discriminates against American car exports like a tariff, and conversely, that the VAT rebate provided to European car producers exporting to the US constitutes a subsidy and the car then simply faces a tariff and no VAT. (It is worth noting that both a domestic automobile and a European car sold in the US would face US state sales tax.)
While it may seem like a compelling political argument to justify across-the-board tariffs on the EU, it instead reflects a complete misunderstanding of what a VAT is and how it works. Worse, it misplaces the blame for a lack of US competitiveness on the European VAT instead of reevaluating the flaws of both the US federal and state tax systems.
VATs are border-adjusted, meaning they rebate tax on exports and impose tax on imports. Despite the appearance of subsidizing exports and punishing imports, however, a border-adjusted VAT is trade neutral.
If there is a complaint to be made about tax policy and implications for US competitiveness in Europe, it is about uncompetitive state sales tax structures in the US system that yield what is known as “tax pyramiding.”
Unlike most countries, the United States does not impose a broad-based consumption tax at the national (federal) level, and state-level consumption taxes are designed as general sales taxes rather than value-added taxes. Whereas a VAT is imposed on the incremental increase in value of a good or service at each stage of production, a sales tax is imposed on the total transaction price of any taxed good or service.
If a sales tax is imposed exclusively on final consumption, then VATs and sales taxes are economically identical. However, when the sales tax is applied to some intermediate transactions (“business inputs”), it results in tax pyramiding, where the tax is embedded in the price multiple times over.
The Truth About Tariffs – Fact-Checking Trump
Consumption Taxes
VATs, tariffs, and sales taxes are all taxes on consumption.
If you want less of something you tax it. Thus, consumption taxes act to reduce trade.
The irony of Trump’s moaning is that if he truly wanted “reciprocal” tariffs he would implement a VAT instead of tariffs.
Of course, a floating VAT that varies by country is not possible, but as a means of raising money, a VAT makes far more sense than a tariff.
Tariffs punish those who spend most of their money on good, thus punishing the poor and middle class more than the wealthy.
Tariffs are also very hard on small businesses that are less able to pass on the costs or easily shift suppliers than are large businesses.
As with tariffs and who pays tax, Trump is economically illiterate about VATs.
Legitimate Gripes
Trump has some legitimate gripes, especially against China and Vietnam, but none on Canada or Mexico. USMCA took care of both countries.
Had trump joined the Trans-Pacific Partnership (TPP) he would have few gripes with 11 additional nations.
TPP singing members include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
The TPP contained measures to lower both non-tariff and tariff barriers to trade.
On the Outside Looking In
Trump withdrew the US from TPP because he believes in bilateral negotiations that he is mightily struggling with now.
The withdrawal of the United States killed TPP. However, the remaining parties successfully negotiated a new version of the agreement, the CPTPP, which entered into force in December 2018.
Wikipedia has these amusing comments on CPTPP
On 25 January 2018, U.S. President Donald Trump in an interview announced his interest in possibly rejoining the TPP if it were a “substantially better deal” for the United States. He had withdrawn the U.S. from the original agreement in January 2017. On 12 April 2018, he told the White House National Economic Council Director Larry Kudlow and U.S. Trade Representative Robert Lighthizer to look into joining CPTPP.
U.S. Wheat Associates President Vince Peterson had said in December 2018 that American wheat exporters could face an “imminent collapse” in their 53% market share in Japan due to exclusion from CPTPP. Peterson added, “Our competitors in Australia and Canada will now benefit from those [CPTPP] provisions, as U.S. farmers watch helplessly.”
The National Cattlemen’s Beef Association stated that exports of beef to Japan, America’s largest export market, would be at a serious disadvantage to Australian exporters, whose tariffs on exports to Japan would be cut by 27.5% during the first year of CPTPP.
I was against TPP at the time, but that was on the basis of the dispute resolution mechanism which could have been negotiated. Also, Obama insisted on a bunch of environmental nonsense. That too would have gone away it Trump demanded.
For discussion, please see my April 7, 2025 post Obama’s Trans-Pacific Partnership Fiasco vs. Mish’s Proposed Free Trade Alternative; How Will TPP Function in Practice?
With Obama out of the picture, Trump would have been in position to correct flaws in TPP.
Via USMCA and a modified TPP, the US would have been in a much better position to isolate China.
Instead, Trump is antagonizing our best trading partner, Canada, as well as Mexico and the EU, our three collective best trading partners.
And Trump is irritated at Japan for trading with Australia instead of the US on beef and wheat.
Reciprocal Tariffs
Reader: “Tariffs are reciprocal. All Canada has to do is to lower the tariffs they charge the US to what they want the US to charge them.”
Me: USMCA IS reciprocal right now. In extremely minor instances where it isn’t, TRUMP negotiated the deal.
Please read over and over Cheese Was a “Key Achievement” of Trump’s USMCA Trade Agreement
The above post contains over a dozen instances in which Trump bragged what a great deal.
It was such a great deal that Trump thanked Mexico and Canada. Notably USMCA is “Good for everybody – Farmers, Manufacturers, Energy, Unions – tremendous support. Importantly, we will finally end our Country’s worst Trade Deal, NAFTA!”
Related Posts
April 25, 2025: Trump Tells Time Magazine He Has Made 200 Deals Already, Refused to Name Any
Check out this incredible interview with Time.
May 5, 2025: Small Businesses Will Get Hit the Hardest by Trump’s Tariffs
Small businesses were already struggling. Tariffs will end the viability of many.
May 8, 2025: Fact Check on Trump’s Claim “We Don’t Do Much Business with Canada”
“We don’t do much business with Canada from our standpoint, they do a lot of business with us.”
May 23, 2025: “Talks Going Nowhere”, Trump Threatens EU with a 50 Percent Tariff in June
What happened to Trump’s claim “200 deals already”?
Reader: “If you charge your customer for shipping, then your customer must pay VAT on the shipping costs.”
I fail to see how this proves anything.
Trump is economically illiterate on
1) Who pays tariffs
2) His idiotic definition of reciprocal that includes mathematic flaws on top of being fundamentally flawed
3) The asinine notion that tariffs can replace income taxes
4) How VATs work
This is not conjecture, it’s proven stupidity
And thanks for brining up iPhones because I will do an article on how stupid that is
He is not stupid. Not stupid at all. Just a bully.
You can’t beg bully to stop bullying.
You have to confront bully head on like China.
Bully will bully with or without reason.
Turn off his life support he’s clearly wasting electricity.
Illiterate, asinine, stupidity and idiotic are not terms that advance your arguments.
Lol! Don’t take it personally. Just because Mish destroyed your continuous argument that VATs are a trade impediment.
No he didn’t. You just don’t know enough about it to understand the argument. It doesn’t involve oil or gas so you are clueless.
Lol! I understand it perfectly. And you don’t. Apparently you are too stupid to be embarrassed. Hahahaha!
In regards to a VAT in the states, is that even worth discussing at this time since I can’t imagine that a federal tax of even just 15% is Politically plausible by any party.? It certainly couldn’t be implemented by a president alone so that isn’t an option as some might suggest to offset other country VATs.
Maybe there will be a politician able to make the case on the campaign trail in the future. Or maybe not.
Mish.
In this rare case I am going to agree with Trump. The VAT system is clearly designed to gain trade advantage. It is a different way of calculating and applying taxes at each stage of production. The key trade influencing aspects are 1 The full amount of the VAT is charged on imports-i.e. it is in reality a tariff on imports. and 2. it is rebated/refunded on exports providing a clear trade advantage.
So, if for example the US started calling the social security, medicare, and other payroll taxes applied to the labor input at each stage of production (“value added taxes”) and then rebating or refunding them if the goods are exported how would that differ from the European vat system? Answer: only the accounting and tracking system differ.
My suggestion to trump: break the tariffs into two parts:1. a “Value added tax” tariff of about 15-20% applied to all countries and additional variable % economic tariffs applied on a country by country basis. Then apply a rebate for qualified exporters equivalent to the VAT tariff charged (for example 16.67% rebate if the VAT tariff is 20%). This change would level the playing field to a large extent.
Mish said he was convinced by DMT that a vat is better than a national sales tax. I would like to know the difference and why a vat would be better than a national sales tax. For some reason I assumed they were the same thing.
“…Trump is economically illiterate about VATs.”
That may be true, but what about his intelligent economic advisors? Why don’t they step up and try to educate Trump on how a VAT really works? Is it an administration full of yes men?
In this rare case Trump is not the economic illiterate. The VAT system is clearly designed to and does in fact convey significant trade advantages. Trump seems to understand this, but does not have a good plan to combat it. I suggest the US impose a simplified VAT system as an alternative.
Trump didn’t just kill the TTP, but the idiot also killed the TTIP deal which would have ensured free trade between the US and the EU. It would have also ironed out a lot of those pesky problems having to do with differing standards and homologation issues between the US and Europe that Trump’s trade clowns point to as non-tariff trade barriers.
Hahahaha! Trump delays 50% tariffs on Europe till July 9th to allow time for negotiations.
Trump is practicing a “push-pull” form of negotiations which is not entirely idiotic. But it should be known that he has little wiggle room to change his own demands, because of the Draconian nature of his tariffs. Besides being overly forceful, the tariffs are slaps in the face diplomatically, something most countries are exquisitely sensitive to. In the end, if Trump succeeds, it will be in reducing other countries’ discriminatory barriers against U.S. products. He may be at least partially a success. Only time will tell.
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Dark . Sport. Blog is my website if you want to read more.
Pot, meet kettle. When will the US reduce its tariffs and discriminatory policies?
For example, we have had a 25% tariff on truck imports since 1964. Just 61 years so far. When will we get rid of that tariff?
Surely VAT is still a trade barrier? Maybe not between countries, but between companies and individuals.
I thought the principle reason tariffs are bad is they increase prices for consumers? Surely VAT is the same? Why are we saying VATs are fine, tariffs aren’t?
Happy to be corrected here.
Trump and the cult are the only ones saying tariffs are good and VATS are not.
What we are saying is:
1: A VAT is a better, more fair way of raising revenue.
2: Trump is saying tariffs are OK and VATs are not – He is misguided
3: Both are consumption taxes but a VAT can be better tailored to products. For example some EU countries have a 5% VAT on food and much higher on other items.
This is similar to varying sales tax rates by states and localities.
Trumps tariffs are generally broad, by country, but he does have higher rates on steel, cars, and solar panels, etc.
Fine. Trump should change the name to value added tax on imports and vary to % by type of goods. If he then rebates the tax on exports of goods of the same category he would gain the same trade advantage as Europe etc.
The article says that the VAT is not specifically designed to give the host country a cost edge but it does give an edge because of poor tax policies in the US. I agree with this. The VAT does conifer a disadvantage on the US but that disadvantage is self-inflicted. Although self-inflicted I still laud Trump’s attempts to rectify this disadvantage.
Your post brings to mind the phrase, “Loyalty has no bounds.”
Which is your way to admit that all your previous arguments on VAT were wrong. Got it.
I never said it was made to confer an advantage but that it was an advantage anyway.
Yes. And you went to great lengths to explain why. And you were completely wrong. And Mish just schooled you. But you are probably too stupid to understand that you just got schooled
Lol!
Consider the case of Oregon (no sales tax) shipping something to Europe (assume a VAT of 15%). When the OR product arrives in Europe it gets a 15% tax which the government pockets. The reverse trade results in the European export getting the VAT refunded, but Oregon gets nothing.
Even here in Washington the sales tax is less than 9%, there is an imbalance in revenue flows.
Whether you call a VAT a tariff or an export subsidy doesn’t matter. The end result is the same.
Normal politicians (or for that matter normal people) respect the truth, fact checkers and do not want to be absolutely wrong about anything that detracts from their credibility.
Trump on the other hand does not care at all about the facts, rule of law or ethics.
What does it say about our society when leadership depends more on sycophantic followers and Fox News to dominate the narrative?
We need more Mish Shedlock’s in the flow of information and more importantly, objective and factual news agencies covering what has become a circus atmosphere of suspended disbelief at the top of the U.S. government.
the vast majority of amerikans are exactly like trump, biden, schumer, mitch and on and on to the back benchers in state capitols. democracy works. always has. always will. i implore you kids to go read “republic of plato”. slowly.
I think that this group has a good array of opposing voices delivered by smart readers. This is my go-to Website every morning.
Let’s get together and Thank Mish for his work!
People spend a lot of energy getting angry at Trump, but at the end of the day I blame the people who voted for him and for the other pols and press who enable him.
Trump reminds me the story of the frog and the scorpion, where the scorpion asks for a lift across the river and promises not to sting the frog. But halfway across he stings the frog, and the frog asks “Why did you do that, now we will both drown” and the scorpion replies, “I’m a scorpion, it’s in my nature!”
Anyone who couldn’t see Trump’s nature is a complete moron who has no business voting on anything except maybe what’s for dinner.
The only blameless people are the ones who put in write-in votes for reasonable people instead of Republicans & Democrats.
Thank You
I wrote in Mish
libertarians and/or greens, when i vote in 2 us states. in EU i vote for their equivalents……..
James Monroe was not available for a 3rd term.
Trump said that he doesn’t even want a deal with Europe. 50% tariffs ARE the deal. And HE is setting the deal.
His Liberation day tariffs on Europe were 20%. Then he backed off to 10%. Now he is up to 50%.
Hahahaha! Go Trump!
The question now is when he will back off of 50%; before June 1, or after?
And when he backs off, what will be the reason?
1. Because Trump will claim that Europe is now ready to give big concessions to the US.
2. Because 50% is too much and he doesn’t want to hurt Europe that much.
3. Because “important people” are calling him and telling him “really big things” that are making him change his mind.
As always, I hope he puts 50% tariffs into effect on June 1 and keeps them there. There are lessons to be learned here.
And perhaps Europe will respond in kind!
What a show!
I remember when the US had a greater purpose than to be a three ring circus for our amusement
trump is like nixon and lbj but with much funnier jokes. democracy works.
he is the joke!
It is what it is. And neither you nor I can change it.
All we can do is enjoy the show!
I think a current court case regarding his authority to impose tariffs will go against him. This will then move on to the supreme court for a final ruling. In the meantime his negotiating position will be severely compromised. Its going to be very interesting and a great clown show
I have stated before that the Supreme Court is his escape route. He can then claim that tariffs would have worked, if only the Supreme Court hadn’t interfered.
VAT taxes can discriminate against imports. For example I collect Australian crown coins. When I buy them on eBay here in Australia I pay no GST, which is the local version of VAT. But earlier this month I added to my collection from a dealer in the US. For that I had to pay 10% GST.
So very time I add to my collection I favour local sellers over US sellers after I factor in the 10% difference.
So allow that there are maybe a million people in Australia who collect coins, stamps, beanie babies, antiques etc and that might lose US sellers a few hundred million in sales just from Australia. Then add in all the countries with some form of VAR and it might be a few billion. Tiny compared to the trillions in trade but it does prove that VAT does sometimes discriminate against the US.
PLEASE: MISH! Don’t give this lame-brained Administration any bright ideas. If they implemented a VAT, then TAXES PAID TO STATES AND THE FED would simply be more inflation on TOP of the freaking tariffs.
We live in Portugal part time …. and in some cases the VAT’s are double digits.
Yes, we lived in Ireland for a while with 21% VAT. However, if your government is going to spend, your government is going to tax. Of all taxes, a VAT or national sales tax is the “best tax” (I know, an oxymoron).
Yes, absolutely. In exchange for high Taxes in the Countries we have lived in over there (for extended Periods: Espana, Italy and Portugal namely) they GET something for those extra taxes collected. You know this already, LTK, but typical American taxes collected are spent on: 1) Bridges to nowhere (graft). 2) WARS EVERY-FREAKING-WHERE. And, very little spent to help out the middle-class Wage earners who blow huge wads of money on the so called “Health Care” which is a corporate Greed cartel in America. In Portugal, we paid out of pocket on procedures that would have been THOUSANDS here in America and HUNDREDS there!
been arguing that point with amerikans for decades. like talking to tree stumps.
The real story is Trump is a failure. he doesn’t know how to govern much less think beyond impulsive, irrational and nonsensical terms. The White House has stopped publishing transcripts because most of Trump’s dialog is now senseless babble.
He is in cognitive decline same as sleep Joe. He really should be referred to as sleepy Don from this point forward. Absolutely no distinction between the two at this point.
Generations of tax experts have been trying to explain to (most) Americans how a VAT works, why it is neutral with respect to external trade, and why it is far superior to the present consumption tax mess in the US. With economic illiterates like Trump repeating the same VAT nonsense over and over again, it may take (most) Americans another 50 years before they understand what is explained in very clear terms in this post.
Albert, come on now: a VAT is a bad idea whose time will hopefully never come to America! Just about the time I am writing this: some stupid fuk in the WH will launch this idea as “good for Americans” with “BEAUTIFUL VAT’s.”
Why a bad idea? Why worse than a sales tax which already exists?
Many economists think a consumption tax is a better way to levy taxes (if you’re going to do it) than income or excise taxes. Taxes discourage consumption, and hence encourage investment/savings
If we are talking about „The Americas,“ then the VAT has already come to 34 out of the 35 sovereign countries in this hemisphere. But given the level of understanding in this country how a VAT would work, you may be right to argue that we should not get into this.
Thanks
. The TRUMP VAT Part II
.
when a substantial majority of goods like pharmaceuticals (60-70% imported), televisions (90% imported), or toasters (nearly 100% imported) are produced abroad, a tariff on imports effectively acts as a tax on “all goods” in those categories, making its effect more akin to a VAT within those markets.
In these markets of which there are many The tariff raises prices across the board, as consumers have few or no domestic alternatives, mirroring how a VAT taxes all consumption.
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The Savvy Reader has just understood that Trump could Never get a VAT passed in the US or it is very unlikely to
However while the tariff’s mechanism and intent differ — the result is effectively the same – eg: in categories like toasters, where imports dominate entirely – if you wanted you could call it a VAT-like effect limited to high-import categories
Trump has indeed passed a FORM of a VAT TAX and the American Public is simply not aware .
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VATs are paid in full on the retail purchase by the consumer. A tariff “might” be paid in full by the consumer. But some of it “might” be absorbed by multiple middlemen along the way. And it’s impossible to determine how much of it is passed through to the consumer. It is not an easy comparison.
You haven’t done the math.
Hahahaha! Says the idiot who insisted the VAT is a big trade barrier.
.The TRUMP VAT
Of Course Trumps Tariffs are a FORM of VAT Tax
While the importer pays the tariff at the border, and that is absorbed in part by distributors and the chain to sale
Of Course the consumer shall pay a portion of the Tariff when they purchase
the distribution chain is unlikely to pay it all
So this is indeed a Form of VAT – it’s just no one knows how much the consumer will pay of the VAT / Tariff
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Unlike sales taxes, VATs are extremely difficult to manipulate or duck.
The rebate structure in and of itself ensure compliance.
It is sales taxes that are more easily avoided by pretending something is a business expense when it isn’t.
You have it ass backward.
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it is all explained in The TRUMP VAT Part II
I do not see how one could argue the explanation I provided but if you disagree please let me know.
I never mentioned the words ‘ sales tax ‘
. I believe I am 100 % correct, but again, If you have a correction I am the first to want to know –
.
In Europe they write off questionable expenses as business expenses too. They can get creative too.
This discussion is nothing but another divide & conquer tactic, as none of the taxing method addresses reality or produces a solution. All of the tax proposals divides people, shuffles the chairs on the Titanic of debt, and will only lead to bloodshed and revolution.
Throughout history Govt’s borrow without any intentions of paying it back. They only hope to continue finding new lenders to refinance the old debt. Eventually, they run out of other people’s money and can’t sell more debt, and default. This is the reality that’s coming, first in the periphery economies and then in the core (US Dollar).
Armstrong has posted “The Solution” many years agoa, which is basically doing a form of debt-equity swaps, but it will never be done preemptively because it requires Govt to relequish power. Bring on VAT’s, tariffs, carbon tax, and CBD’s so the crash and burn revolution can happen faster and we can start the rebuilding process, free of the Marxist establishment.
And let’s not forget another idea the elites had to repay the debt, which deserves to become a satire poster: the “Trillion Dollar Platinum Coin”.
Excellent article describing Trump’s MAGA Maoism – spot on.
https://www.axios.com/2025/05/25/trump-apple-manufacturing-central-planning
Trump’s extraordinary interventions — which dovetail with what some critics have labeled “MAGA Maoism” — are rattling businesses, consumers and investors, and throwing global markets into turmoil.
Yep. Trump and his ass-kisser followers are hurting the US economy by refusing to understand basic economics. Or by simply refusing to admit what they know is true in order to fool their supporters. Either way, the US economy and citizens suffer.
Trump claims VATs are a trade barrier when they are not. And there are plenty of Trump followers here who continue to think that they are.
He claims that other counties will pay the tariffs to the US government. Some idiots here believe that too.
He claims that tariffs will raise enough revenue to eliminate the budget deficit, pay off the debt, eliminate income taxes, and make us all rich. Which is all impossible. Plus, he fails to mention that Americans are paying the tariffs.
He claims that all other countries conspire to take advantage of the US. He thinks any trade deal they sign with each other is designed to harm the US. Yet when they offer to make the US part of a multi country trade deal, he refuses to participate. (TPP)
Trump hates multi-country deals so he wants to pull out of them. He prefers one to one deals, because they are easier for him to understand, and because the US sometimes has an advantage in one to one deals.
Over 4 weeks ago he told Time that he had 200 deals finished and ready to sign in 3-4 weeks. So far: zero signed deals. Just a temporary partial tariff reduction with China and an insignificant tariff reduction announcement with the UK. Certainly no comprehensive trade deals, which usually take years to work out.
Meanwhile he maintains 10% or more worldwide tariffs on a lot of our imports and keeps threatening even higher tariffs if other countries won’t capitulate to his ridiculous demands. And while he waits, and fumes, other countries have a tremendous incentive to reach out to each to each other and work on enhancing trade deals that he refuses to participate in.
This is an amazing experiment in economics that Trump is imposing on America’s economy. I hope he continues it as long as possible so we can all see the results, and we can all learn a lesson from it.
Congrats you just earned a coveted Mishelin™ star for outstanding comment!
Everyone will need to come up with their own solution to this mess. No politician from either political party is going to save anyone. For me it’s about keeping my money making assets in the US and keeping myself elsewhere to leverage currency and labor arbitrage for an amazing quality of life.
So this begs the question, got exit strategy?
Agree. All each of us can do is personally take advantage of the opportunities that present themselves in this time of exceptional volatility and uncertainty. I have had “multiple exit strategies” for over a decade now, though I don’t expect to need them. The chances of a complete collapse in the US remains very small. I expect a recession later this year, but not a depression, nor a complete collapse.
Based on the Japanese experience, I expect the US to be able to kick the can for a few more decades.
papa dave nails it i agree. i do sympathize with your sentiment of having an exit strategy. smart. i have had plans for decades. passports etc…….lived in many places domestically, too. however remember the us tax code is chocked filled with great goodies, if one really studies it. if one sets oneself up in a proper tax efficient business like gas and oil, real estate, carry interest in hedge funds and pe…… and a few others, there are endless ways to make the tax code your friend. so many credits and exemptions and writeoffs…….
I used to think in terms of an “Exit Strategy”.
Then it became more reasonable to build a “Stay Here and Thrive Strategy”.
I love living in America and where I live. Clean water, clean air and my neighbors (17 of them) are great allies and friends. We look out for each other and our extended neighbors in our community. Security is an interesting concept and one that can be created with thoughtful relationship building and respect.
It is amazing how smiling first can open doors and create good will and security.
I fear that it is not ignorance which is feeding all this.
It is the instinct to insist that all America’s problems are caused by evil foreigners.
Misidentifying causes is the surest way not to address and remediate problems.
Blaming others leads to wars, repression, and other nasty behavior.
Blaming others is standard procedure for politicians. Particularly Trump. He started it the moment he came down that escalator to declare his candidacy many years ago and it has been non-stop ever since.
This week it was: “The EU was formed to take advantage of the US”.
Yes it’s moronic. But look at all the morons who buy into it. Enough to make Trump president twice.
The reason that the United States doesn’t have a VAT is that consumption is the private consumption as a percentage of GDP is the highest of all major countries and the personal savings rate as a percentage of GDP is the lowest of all major countries.
Hard to reduce imports and increase manufacturing with that track record.
Matchbox cars in the ‘60s, Raleigh bike in 80s. Don’t remember anything else I would have bought made over there.
german stereos. japanese stereos. autos too. 70s and 80s. crazy eddie, these prices are INSANE…….
Sorry, I forgot that Japan was in the EU!
This is an interesting post, going to have to spend time on it.
Mish, I sell stuff on eBay and when I sell to customers in Europe or any other country that has VAT the VAT tax is paid even on the cost of the shipping. How is that not putting the import into those countries into disadvantage? Why should a country tax the shipping of the imported goods.
I understand you are focused like crazy to prove Trump is economic illiterate but the things are never just black and white and because somebody wrote an article somewhere it doesn’t mean anything. The same was with the iphones going to cost $3500 if produced in US. Common – we are not complete idiots. The propaganda and clickbaiting those days are going out of proportion.
If you charge your customer for shipping, then your customer must pay VAT on the shipping costs.
I fail to see how this proves anything.
Trump is economically illiterate on
1) Who pays tariffs
2) His idiotic definition of reciprocal that includes mathematic flaws on top of being fundamentally flawed
3) The asinine notion that tariffs can replace income taxes
4) How VATs work
This is not conjecture, it’s proven stupidity
And thanks for brining up iPhones because I will do an article on how stupid that is
Trump is once again ignorant to the facts. He falls prey to the same propaganda that he then regurgitates to his likewise ignorant base. What makes it worse is that he does not want to be educated to the facts. He suffers from Mass Formation Psychosis. Once he believes something he simply refuses to consider anything that might refute what he believes, and his minions are more than happy to tell him what he wants to hear.
VAT means Value Added Tax and the way it works is that if you are selling the goods you charge your customer the VAT but then you are being refunded the VAT you paid for the raw materials and the parts used in your product. When someone imports products into a VAT taxing country his products are being taxed with the VAT but he doesn’t get refunded for anything so technically if you are importing something similar to a product being manufactured in that country you are at disadvantage. Again – things are not black and white and there are all sorts of facts.
Please read again.
US sales taxes and excise taxes are not collected on US exports.
It IS black and white.
Yes, US sales taxes have a similar effect to the VAT system. However, they are a much lower percentage rates and are not charged in every state. Clearly the typical 20+% rates charged in Europe and refunded on their exports convey significant trade advantage. The US could do something similar to gain similar trade advantage, but tariffs alone do not work. This is because, without a refund of the tax on exports any imported components are taxed when they enter the US and then taxed again when they are exported. Trump could and should devise a system to fix this problem. I have suggested one way in a separate comment.
“When someone imports products into a VAT taxing country his products are being taxed with the VAT but he doesn’t get refunded for anything”
If the importer is a company registered for VAT the importer will reclaim any Vat paid on the purchase. In the same way, if that company purchased those items locally it would also reclaim any VAT charged. No difference, no advantage.
If the importer is an end consumer they’ll pay the VAT and won’t be able to reclaim the VAT, in the same way as if they purchased the goods locally.