Economic illiteracy on value added taxes is rampant.
Tax Foundation
The European VAT is Not a Discriminatory Tax Against US Exports
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.
What is VAT and how does it work for exported goods?
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. A border adjusted tax leads to currency appreciation for the imposing country, which would make it cheaper to import goods, more expensive to export goods, and thus would cancel out the apparent benefits of the tax on imports and the rebate on exports.
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.
Note that, while a VAT is imposed at every stage of the process, the net effect is to apply the rate one time to the final sales price. The tax is collected in increments (on the “value added” at each stage), but unlike with a pyramiding sales tax, it does not double tax inputs. The VAT and ideal sales tax share an identical tax base and, if imposed at the same rates, yield identical collections.
US sales taxes are typically destination-based, meaning that the tax is owed where the product is received or consumed. If a European resident orders from a US retailer, they do not pay US sales tax, just like a US consumer can obtain a VAT rebate on purchases of European products. Neither is a subsidy. These are simply consumption taxes falling on the consumer.
In practice, however, US sales taxes diverge sharply from the ideal. More than 40 percent of US sales tax revenue comes from intermediate transactions, which impose costs on US producers. This design flaw is not present in VATs, which do not double-tax intermediate transactions. Consequently, the sales tax imposes a penalty on domestic production that a VAT (or a better designed sales tax) would not. European VATs aren’t subsidizing anything—US states are just shooting themselves in the foot.
International Chamber of Commerce
Are value-added taxes a barrier to trade?
- The multi-stage payment mechanism of VAT, where businesses collect and pay VAT throughout the supply chain, ultimately passing the tax burden to the final consumer
- VAT ensures a level playing field for both domestic and foreign businesses by treating all businesses equally, regardless of their location or origin.
- The principle of VAT neutrality, which stipulates that goods are taxed in the country where they are consumed, not where they are produced
- VAT does not create barriers to international trade and ensures that all products competing in the same market face identical tax treatment.
ING
Reciprocal tariffs are on, but VAT is the bigger elephant in the room
In the EU, VAT revenues account for 7.5% of GDP and 18.6% of total tax revenues (as of 2022). The EU-27 average standard VAT rate was 21.5% in 2023, with Luxembourg at 16% and Hungary at 27%. Globally, 175 countries have a VAT system, with the US being one of the few exceptions, using a sales tax system by state varying from 0% to 11.5%, instead. Since VAT is typically applied as a destination-based tax, meaning it is charged based on where the goods or services are consumed rather than where they are produced, it aligns with WTO principles.
Sales Tax Rates
State and Local Sales Tax Rates, Midyear 2025
The five states with the highest average combined state and local sales tax rates are Louisiana (10.11 percent), Tennessee (9.61 percent), Arkansas (9.48 percent), Washington (9.47 percent), and Alabama (9.44 percent). The five states with the lowest average combined rates are Alaska (1.82 percent), Hawaii (4.50 percent), Maine (5.50 percent), Wyoming (5.56 percent), and Wisconsin (5.72 percent).
Nationwide, the population-weighted average sales tax rate is 7.52 percent, up from 7.49 percent in January. Excluding the five states without statewide sales taxes, the weighted average rate has riven from 7.68 to 7.72 percent.
There are a handful of state that don’t have sales taxes, but the average population-adjusted rate is 7.5 percent, so start there.
From the lead image, tax pyramiding makes sales taxes even higher.
Chicago has a combined sales tax rate of 10.25%. So does Cook County.
The Illinois Policy Institute notes that Illinois has an amazing 6,963 taxing body, and the second-highest property tax rate in the nation.
Fortune
“A VAT tax is a tariff,” Trump told reporters Thursday.
That’s not true. A tariff is a tax on imports, while the VAT is simply a tax on all domestic consumption, regardless of where the good or service is produced. In the end, the only major difference between a value-added tax and a sales tax is the way in which it’s collected.
Ultimately, the final cost—or economic burden, to be more precise—is borne by the consumer. Value-added taxes are generally considered administratively superior, however, because they create a natural audit trail that discourages tax evasion. Most countries have found a sales tax is practically unenforceable above 10% [What About Chicago?], according to the Tax Foundation, as both buyers and retailers have greater incentive to avoid the tax or keep revenues, respectively.
The United Kingdom, no longer a member of the EU, has a value-added tax of 20%. The U.S. still maintains an $11 billion trade surplus with Britain, according to the Census Bureau.
Wall Street Journal
What Is VAT? The Tax Fueling Trump’s Latest Trade Fight
Critics say VATs disadvantage U.S. exporters, contributing to a widening trade deficit, due to their size and how they are applied. Europe’s average VAT, 20%, is far higher than the average U.S. sales tax, 6.6%, according to the Tax Foundation.
Are VATs really unfair?
Some tax experts don’t think so. While European countries give exporters a VAT rebate, the U.S. does something similar by exempting its own exporters from sales taxes, said Sean Bray, vice president of global projects at the Tax Foundation.
Let’s Add It Up
- Weighted Sales in the US: 7.52 percent
- Sales Tax Not Collected on US Exports: 7.52 percent
- Intermediate sales taxes collected in the US: Unknown but consult lead chart for how this works.
There’s your “VAT is a tariff” nonsense in a nutshell.
But if you choose to be a Trump parrot or an economic illiterate, then I can’t stop you.
Amusing Aspect of Reciprocal Tariffs
Trump says, “We do to them what they do to us.” What a hoot.
If we want to do to them what they do to us, we would have VATs.
Alternately, the administration could subtract US sales taxes, intermediate sales taxes, and taxes not collected on exports from its idiotic calculation of reciprocal.
Non-Tariff Barriers
Q: Do countries have non-tariff barriers?
A: Yes and China is among the worst
China’s mode of operation is to encourage production in China, learn what it can, steal what it can, then kiss the relationship goodbye.
I believe Tesla will soon find this out. In contrast, Apple was clever not to produce anything in China. It only assembles its products there, now headed to India. Wait a second – now headed back to China (See Trump Increases Tariffs on India, Demands India Stop Buying Russian Oil)
China also has massive subsidies on production.
The EU has rules against GMO agriculture and chlorinated chicken. That’s relatively minor stuff.
The WTO also ruled the EU had unfair subsidies for Airbus, which of course Trump touted.
The WTO then ruled the US had unfair subsidies for Boeing, which of course Trump and the Cult ignored.
Change in My Stance
Six years ago I would have said the US should have no tariffs or subsidies ever.
I have changed my stance. The US cannot be held slave to China’s rare earth monopoly.
The US needs to develop rare earths and if that takes subsidies I am OK with that.
Strategic Items
- Rare earth minerals and processing
- Advanced microchips
- AI
There might be more, but copper, aluminum, and steel are not on the list. Numerous allies produce them, and there is plenty of supply and competition.
Thanks to Nvdia, the US has the lead in chips. Production in Taiwan is a huge concern. One of the few things Biden did correctly was give Nvdia subsidies to produce here. Trump complained.
It is probably not in Taiwan’s best interest to move its best production facilities here. If the US no longer needs Taiwan, Trump will throw Taiwan under the bus and brag about it.
The AI lead is debatable but the US needs to do whatever necessary to stay in the lead.
Rare earths are a huge problem. China has a near monopoly, globally.
Trump’s Counterproductive Actions
Trump should be making rare earth production deals with Canada and Mexico. To keep costs low, let Mexican labor should do the processing.
To prevent China undercutting, I would OK production price guarantees. And if China tries to suppress prices to kill competition, the US would simply buy a 10-year reserve.
Instead, Canada is building a pipeline to its west coast, to export oil to Asia. And is looking for more reliable trading partners elsewhere. Mexico is doing the same.
The US had an amazing deal with Canada and Mexico. Despite being signed by the US Senate, trump unilaterally broke the treaty.
Reciprocal Tariffs Are Dead, but Trump Has 7 Other Options to Discuss
On June 6, I posted Reciprocal Tariffs Are Dead, but Trump Has 7 Other Options to Discuss
Trump wants to maneuver around the court’s tariff crackdown. His success will be limited.
On July 31, the en banc US Court of Appeals will hear arguments on reciprocal tariffs.
En banc means a full 11-panel hearing instead of a 3-judge random selection. I expect this will not be close.
11-0 against Trump would not be surprising. But I would be shocked to see any ruling in favor of Trump. Case law is not even close.
Then what?
The Supreme Court is not as easy, but count the three liberals and find two more. It should be unanimous but won’t be. My guess is 6-3 or 5-4 against Trump.
However, the Supreme Court may not even hear the case if the appeals court ruling is a lopsided as I suspect.
For discussion of the lopsided case against Trump, click on the above link.
USMCA Was the Best Trade Deal in History
Please note that USMCA was the best trade deal in history.
But don’t take my word for it. Take Trump’s word.
Trump Statements on USMCA
- August 21, 2023: The highly anticipated Des Moines Register Poll of Iowa Voters is just out: “DONALD TRUMP HOLDS COMMANDING LEAD In First Test of 2024 Republican Caucus Field.” Remember, I got the Farmers 28 Billion Dollars from China, the USMCA Trade Deal (& many others!), saved Ethanol, Social Security, and MediCare, & got Iowa “First In the Nation” status. Nobody else could have done this. Anyway, I’m at 51%, a 31 Point lead over “farmer hating” DeSanctimonious, with the others gaining on him, but not on me!
- February 15, 2020: RT @WhiteHouse: President @realDonaldTrump’s USMCA will have a tremendous effect on GDP!
- January 30, 2020: BIGGEST TRADE DEAL EVER MADE, the USMCA, was signed yesterday and the Fake News Media barely mentioned it. They never thought it could be done. They have zero credibility!
- January 29, 2020: USMCA is a cutting edge state of the art agreement that protects, defends and serves the great people of our Country. Promises Made, Promises Kept!
- January 29, 2020: USMCA is a massive win for American manufacturers and auto workers!
- January 16, 2020: One of the greatest trade deals ever made! Also good for China and our long term relationship. 250 Billion Dollars will be coming back to our Country, and we are now in a great position for a Phase Two start. There has never been anything like this in U.S. history!
- December 10, 2019: America’s great USMCA Trade Bill is looking good. It will be the best and most important trade deal ever made by the USA. Good for everybody – Farmers, Manufacturers, Energy, Unions – tremendous support. Importantly, we will finally end our Country’s worst Trade Deal, NAFTA!
- December 19, 2018: Mexico is paying (indirectly) for the Wall through the new USMCA, the replacement for NAFTA! Far more money coming to the U.S. Because of the tremendous dangers at the Border, including large scale criminal and drug inflow, the United States Military will build the Wall!
- December 13, 2018: I often stated, “One way or the other, Mexico is going to pay for the Wall.” This has never changed. Our new deal with Mexico (and Canada), the USMCA, is so much better than the old, very costly &, anti-USA NAFTA deal, that just by the money we save, MEXICO IS PAYING FOR THE WALL!
- November 30, 2018: Just signed one of the most important, and largest, Trade Deals in U.S. and World History. The United States, Mexico and Canada worked so well together in crafting this great document. The terrible NAFTA will soon be gone. The USMCA will be fantastic for all!
- October 3, 2018: Mexico, Canada and the United States are a great partnership and will be a very formidable trading force. We will now, because of the USMCA, work very well together. Great Spirit!
- October 2, 2018: “USMCA Wins Praise as a Victory for American Industries and Workers”
People who believe all Trumpian BS think Canada has 250% tariffs on US cheese.
I discussed this on March 9, in Cheese Was a “Key Achievement” of Trump’s USMCA Trade Agreement
Trump is complaining about Canada’s cheese tariffs. In 2018, he was bragging about cheese.
Q&A on the Greatness of USMCA
Q: Is 250 percent on cheese fair?
A: It’s not 250 percent. It’s tiered, and embedded into USMCA.
Q: Who signed USMCA?
A: Trump
Q: Who is responsible for this arrangement?
A: Trump
Q: Didn’t Trump brag that USMCA was the best trade deal in history?
A: Yes
Q: Didn’t Trump brag about cheese?
A: Yes
Q: Is Trump a good deal maker?
A: Apparently not, by his own admission
Q: Will Trump honor the USMCA deal ratified 89-10 by the Senate and signed by himself?
A: No
Q: Will Trump honor any deal he signs?
A: You tell me, but no one can expect that
Q: Is there a massive lost in trust that Trump will honor any deals he signs
A: Yes
It is foolish to expect Trump to honor any deal he makes. That is the bottom line.
Meanwhile China Again Chokes Off Critical Rare Earths Needed for Defense
Trump threatened China with tariffs for doing business with Russia. Guess what?
The EU pretended to make a deal and Trump bragged about it.
China pretended to make a deal and and Trump bragged about it.
Japan pretended to make a deal and and Trump bragged about it.
Wake me up when there are actual signed details.
Addendum
A reader accurately noted that VATs and Tariffs are both tax hikes.
But VATs always fall on the end consumer. Tariffs and sales taxes can hit intermediate producers.
Finally, VATs are not trade barriers but tariffs are.
It is for these differences VATs do not act like Tariffs despite both of them being tax hikes.
Finally, my reader is correct in that both are taxes and taxes discourage consumption.
But as a tax collection mechanism, a properly constructed VAT (no tax on food, medicine and essentials, higher on luxury items like boats) is far superior to this nonsense from Trump.
This is how VAT in the EU acts as a de-facto tariff
Yet to see anything written on this subject by anyone had a EU VAT Number. Knows anything about the process of importing goods by wholesalers / manufacturers into the EU. Or I suspect has ever dealt with people like the CADFT etc in the US
Say I’m a manufacturer in a EU country. I’m looking for a supply of components to build my product. Company in US sells the component for $10. Delivery included. EU domiciled company sell exactly the same component for same price. $10 ( €8.55) Delivery included.
In order to take delivery of 10,000 components from the EU supplier I have to put up $100,000 ( €85,500 ). No VAT in price as its for a product for resale. When VAT is collected.
In order to take delivery of 10,000 widgets from the US supplier I will have to put up anywhere up to $123,000 ( €106,126.00 ). Depending on local VAT rate on the particular product category.
The up to $23,000 in VAT will be rerecovered at a later date as it is part product for resale but your business cash flow one way or another will take an immediate 20%+ hit by using the US supplier rather than the EU supplier. For components that are equal in every other way.
Even really big companies with really large multi-national presences and sophistic cash flow management will often think twice before sourcing outside the EU. Unless there is no alternative.
This VAT “tariff” is by design. Not by accident.
And that’s how it actually works. In the real world.
Thanks, Mish. I’m not sure I “got it” all but I appreciate your perspective.
I specifically don’t understand what it means that VATs do not “Behave” like tariffs.
That doesn’t mean anything to me. Does it mean that VAT and Tariff have different impacts on human actions with regard to consuming the affected imports?
VAT does make things more expensive for the consumer ultimately. Corporations can reclaim the VAT they pay, but not the consumer at the final step.
So why isn’t there a significant outcry when the EU implemented substantial trade barriers or when Democratic presidents established tariffs?
tds
Oh well, de minimis is ending 29th August..I sell a handful of items to the USA ( and no, they can’t be made in the USA as it’s a traditional item) so no more sales there, or higher prices for whoever does order
Like Maori jade Koru?
nothing so exotic!
Locally, the sales tax is 10.5%, after a voter initiative for more funding to deal with homelessness, passed. Homelessness in L.A. has declined 4%.
Under reported 4% most likely.
Homelessness is big business now, but many people drift.
I spoke with one recently that traveled 50 miles to my small area because his buddy told him there was an abandoned airplane fuselage here.
That and how does one actually count the homeless? Especially the mentally ill and drug addicts that only appear when hospitalized.
I think like 25% of the US is homeless. For decades we had RVer’s that traveled and circumvented residence via po box or a small plot somewhere.
And the amount of people escaping they system or holdovers from hippy communes or polygamous and associated under the radar travelers.
You’ll believe anything, won’t you? Homeless population last year in LA declined by a smaller number than the number of homeless who died living on the streets.
Something to be very proud of, isn’t it?
Absolutely pathetic to pretend LA is solving homelessness.
Shameful you’d pitch it that way. Do better.
The truly funny thing is that VAT have existed for centuries and it’s only now that Trump barks about them that the cult, like rabid dogs on cue, jump into the fray and regurgitate whatever he says.
Why weren’t VATs an issue 10 years ago? 20? 50? 100? It’s the same with tariffs, only now do they make sense when king clown con man says they’re needed.
There are 1264 days left in this circus show and I have yet to see a new golden age, still waiting.
The peace dividend, from ending the Cold War, didn’t show up as a boom until the late 90’s. The peace dividend from ending WW1, didn’t occur until the later roaring 20’s era.
Notably, Fourth Turnings are not golden eras. The WEF talks of a Great Reset. Globalists are making their plans for our future.
You mean the stripping of Soviet Union resources and related things that Putin ended.
I get the cyclical nature of civilizations BUT no one ever takes into account environmental related changes.
If you never watched CONNECTIONS it was a great series.
They tied in social and technical aspects of civilizations across decades.
I can’t recall if they tied environmental factors. famine, drought, earthquakes, volcanoes all impact globally.
Now with advanced tech we have to worry about Carrington events and Pole shifts.
Environmentally the shrinking Magnetosphere barely gets mentioned when earthquakes are discussed or even the rise in Cancers.
No it was invented by the French economist Maurice Lauré and the French state instituted it in 1954. It has not existed for centuries.
“I believe Tesla will soon find this out.”
Chinese auto and battery manufacturers have blown by Tesla. The liberty of Americans must be restricted from purchasing those amazing Chinese vehicles.
I am looking forward to Ford’s announcement on Monday, August 11th which will showcase a new line of EV’s that they are bringing to market…
Touted as big a shift in transportation as the Model T, I am hoping that Ford will be producing affordable, high quality vehicles in the US.
Also hoping that they announce the use of Solid State batteries containing no graphite or cobalt and manufacture them in the US.
>>>
Sure Johnny and hookers in Vegas are never working moms.
Not Ford but
“Kia has recalled 201,149 Telluride SUVs from model years 2023-2025 because a piece of trim on the vehicles’ doors can loosen and fall off in traffic.”
Now Ford
“Ford Motor Company is recalling over 850,000 vehicles due to a potential low-pressure fuel pump issue, which could cause the engine to stall while driving”
I’ll take the under-bet on Ford announcing anything even far from revolutionary with its EV options on August 11th
Ford was recently hit with a 850k recall and Nissan a 300k recall.
2026 cars are out and sales are not really great. Sure someone somewhere is making up numbers but that is bank loan stuff. Repo’s are not included.
Near the end of the year and that recall takes a big hit on replacement labor.
The U.S. Economy Is Stumbling BadlyDon’t get distracted by the recent 3 percent GDP number. A former top Commerce Department official explains why the economic outlook is grim.
https://washingtonmonthly.com/2025/08/04/the-u-s-economy-is-stumbling/
Are you saying that a government known for continually lying about everything is still felt to be honest to by the populace?
Are you claiming that news agencies known for continually lying about everything is still felt to be honest by the populace?
Other than a handful of money managers and rich or rich adjacent what is the point of discussing anything economic or political?
If you want to know about governments, all you need to know is two words: Governments lie.
I. F. Stone
This weakening is why defense/offense spending had to be increased. The consumer is faltering under the stress of higher prices.
>
And defense helps the homeless and working poor how?
Boeing workers are on strike now.
defense spending is catch the laser light kitty for the masses.
Tell me when they actually hand back money to the working poor.
If we get a bunch of troops killed, that opens up housing.
Not for foreign base troops.
My new favorite is the Lunar nuclear reactor by 2033.
The Chinese say they want a moon base my 2030.
Elon wants to build Moon base alpha, but I watched Space 1999 and that did not go so well.
Cool ships those Eagles.
Everything starts with Donald Trump, the populist! Assuming that the Trump administration has policy objectives of lowering the budget deficit, bringing manufacturing back to the U.S., and lowering the goods trade deficits, and as a populist, how do you do this in a way that the American voter feels they are getting a free lunch? You tell them that they have been taken advantage of for decades by other countries and impose tariffs that are characterized as being paid by those other countries; in reality, the tariffs are paid by American importers, not foreign exporters. The bonus for a populist is that you can do this while looking like a tough deal maker who is fighting for America.
I see a regressive tax hike on a struggling population. Masses in the US have not had good financial health, in view of the programs being cut. They have walked far out on a plank that is being sawed off behind them.
Then this (reminiscent of (I think? Not to put words in your mouth, sorry if so!) some Mish views awhile back, before the big noise wave arrived in ’25 to obfuscate things for awhile):
US economy on ‘precipice of recession,’ Moody’s chief economist warns https://thehill.com/homenews/administration/5435435-mark-zandi-moodys-recession-jobs-report-us-economy/
Making money for family & friends is the primary policy objective:
“Eric Trump and Donald Trump Jr. are getting ‘founder shares’ worth millions of dollars in New America Acquisition 1 Corp., a company with no operating business that hopes to fill that hole by purchasing an American company that can play ‘a meaningful role in revitalizing domestic manufacturing,’ according to the filing.”
“The original version of the securities filing said the target company should be “well positioned” to tap federal or state government incentives. That reference was taken out of the revised version.”
Selected quotes from “Company advised by Trump sons said it hoped to benefit from fed money, then took it back”
Didn’t TACO cut a resort deal while in Scotland recently?
Payroll taxes collections are larger than sales taxes collections. Payroll taxes feed the federal gov, $1.8T, or 35% of the federal gov revenue. Most sales taxes feed the states $480B, or 12% of their revenue. This long commencement about: VAT, USMCA, rare earth, tariffs, Taylor Swift…is boring.
Taylor Swift is so yesterday. Sydney Sweeney is now baby now.
Should you happen to have a picture or link to a bare chested Putin riding Trump the same way he rides the bear?
Being more relevant Volcanoes, fires and earthquakes are active all over recently.
Screw the money men natural disaster is where it is at.
They impact everything from air quality to those insured but not is an area where the event occurs.
And if hurricane Dexter is anything like the books or three series ( they will just not allow Dexter to die out as a profiting franchise) someone is in for HUUUUUUGe problems.
Who down votes ongoing natural disasters? You in a hidden salt mine somewhere?
Grand canyon has a fire running for a month, California has more fires and one volcano spewed ash 11k ft in the air.
Natural disaster trumps economy every time.
Maybe it is the Sweeney thing.
No clue who either her or Swift are but her name is trending.
On my way to the mall right now to buy another sweeney poster.
Is that the one with the tennis outfit and she is scratching her naked butt?
As far as the end consumer in Europe is concerned, they pay the same VAT rate regardless of whether the goods are produced within the EU or imported from the U.S. (which, in most cases, are not subject to customs duties).
In contrast, a consumer in the U.S. buying goods from the EU typically pays import duties and sales tax, while for domestically produced U.S. goods, only the sales tax applies.
Most of Europe also had a sales tax fifty years ago, but the introduction of VAT reduced opportunities for tax evasion, which in turn made it possible to apply lower tax rates.
combining personal income tax and VAT for Europeans usually totals up to what…. 50-60% of ones total income?
Yeah but Europeans have been financially screwed for nearly a century or more now.
Honestly Europeans were probably better off when royalty had great wars.
Many people got rich looting and pirating.
Most of Mexico and Canada’s exports to the US fall under the USMCA exception to the tariffs and if you count the high-value-added products it comes to around 75% so that explains why Carney is less worried about the tariffs. A review is scheduled in a years time so he can wait. In the meantime companies are racing to get origin documentation that would allow them to put more of their products under the USMCA umbrella.
What USMCA umbrella? Trump violated that treaty in spades.
Gas prices are UP 40 cents a gallon in my market since the election ~ thanks to Trump…
Canadian oil is the only grade that can be refined in the mid-western refineries that supply much of our agricultural production. Costs are up and crop prices are down and our exports are being shunned.
Drilling rig counts in the US are down fourteen weeks in a row. Canadas drilling rig count has nearly doubled. Canada is going to flourish as a result of broadening its economy and exporting to the world. The land that is burning there will be turned into cropland and compete with US exports at a great advantage due to its governments stability and reliability.
With Trump at the helm we now threaten our best allies with takeover…
Picture a world where Russia and China defend Canada from Trumps aggression?
Also picture a world where our military is paralyzed without access to rare earths because Trump was not smart enough to stockpile them before poling the bear with his insane tariff war.
Trump is the worlds “Village Idiot”…
>>>
Considering that China controls most of the world supply of rare earths, how was the U.S. supposed to be able to stockpile them? Why did the U.S. allow China to corner the market prior to Trump, especially since China has had its eyes on Taiwan for some time? Trump is at least doing something about it now, investing heavily in MP, for one.
Gas prices in California are highest in the nation. Two more refineries are looking to shut down due to Democrat policies, which will drive prices here higher still.
“Trump is the worlds “Village Idiot”…”
True but Americans have been the worlds village idiots for a very long time.
I don’t think we have been respected since the late 19th century early 20th century.
After that we became the Ugly Americans.
Because we have bastard roots.
The English hated the Spanish, The Native Americans, The French, The Italians, the Irish, and every minority that didn’t follow the American Protestant Ethic.
Google the St. Patricks Battalion or The Foriegn Legion of Patricios. Plus there was a cool movie about them.
Basically mainly Irish pissed off at how they were treated and joined the Mexican revolution.
They are honored in Mexico and have a statue dedicated to them in Ireland.
It’s one of those where you draw the line problems.
If Oregon ships something to the EU the EU slaps a 20% VAT on it. The appropriate government pockets the money.
If the EU ships the same thing to Oregon the state collects nothing as Oregon does not have a sales tax.
If Oregon could put a 20% tariff on EU goods then it would even out. But they can’t as international trade is the Constitutional prerogative of the Federal government.
A nationwide tariff on EU goods is not precise, but it’s what we can do. Congress could implement a VAT and fight fire with fire, but then the states will be howling as very few do not have a sales tax. Washington for instance has no income tax (although capital gains are not considered income and therefore is taxed because our Supreme Court does not do their own taxes) and a 20% VAT plus the existing sales tax would really hammer everyone into the ground.
The people of Oregon are incentivised to buy their own products, (a tariff objective) and if they do Europeans pay 20% more if they buy their own products.
As an europpean, I see the request as asking exported products to be less taxed than local production.
That assumes the product is entirely produced in Oregon, from the bottom up
Individual states have chosen different paths to generate revenue (sales tax, income tax, property tax etc). It’s not the Federal Government’s job to worry about how individual states generate their income or to try and balance their budgets. That’s what the state government’s job is.
The Federal government should only be concerned with Federal matters. So if Oregon loses out on tax revenue in the scenario you mentioned, that’s their problem and they can fix that at the State level anytime they want.
Interesting trade barrier index. https://atr-tbi23.s3.amazonaws.com/TBI_2023ExecSummary_v7.pdf
Mish. I have been following you for many years now. We have respectfully disagreed with each other on many issues over that time. However, I find very little to disagree with lately. I think that our differences are melting away as the world changes right in front of us, and we arrive at similar conclusions. Your willingness to accept government subsidies on strategic materials and to build strategic reserves of these materials being the latest example.
I’m sure I will find the odd thing to still disagree with. In fact, I hope I do. We all need to be continually challenged in order to keep learning.
Thanks!
Example: I buy a water pump at the auto store. If I pay a $20 VAT or a $20 price increase that goes to pay a tariff, the VAT is better?
WTF are you talking about? I’m still out the $20 by extending the life of a vehicle and reducing consumption.
As an europpean, I see the request as asking exported products to be less taxed than local production.
The VAT does not stack through the production chain as Mish pointed out, which makes is better than a sales tax.
And unlike tariffs, it applies to all producers so there is no unfair advantage created for one producer over the other.
Thats the point that was made, not that you don’t have to pay it.
applying a tax to producers who then pass that tax onto customers results in the tax being paid by the customer.
Also, a VAT is a sales tax. Calling it a VAT doesn’t change what it does.
Just wondering.
What’s with the fascination with VATs? By and large, it’s a socialism-based taxation construct.
On what planet do you think a complex system of VATs are going to fly here in the USA?
It’s your site, so whatever, I guess.
I don’t think Mish is advocating for a VAT in the US. He is just explaining how a VAT is not a trade impediment like Trump and his cult followers keep telling us. Several of Trump’s cult have tried to argue here that VATs are like a tariff and that justifies Trump using them as an excuse to hit back with tariffs.
However, if the choice is between using tariffs or a VAT to raise money for the government, then a VAT is the better option.
Somehow most other backward countries are able to implement VATs. VATs are no more socialist than a sales tax. I can see one being opposed to VATs due to opposition to taxes but that should apply to tariffs also.
It’s difficult to dodge, and everyone pays.
Not sure why you label it a socialist construct?
Does the US use VATs? NO Is the US a socialist country? NO
Do many countries in Europe use VATs? YES Are these countries typically associated with socialism? YES
Connect the dots.
Taxing each level of manufacturing is related to socialism. My guess is that it leads to higher taxation, which again is socialism at work.
Will Smith was interviewed by a French news outlet many years ago. He said he liked the idea of moving to France until one of the interviewers mentioned he’d be in the 75% tax backet.
You should look up the definition of socialism before posting about it more – because this is not it.
And your “connect the dots” rationale here (when there is little that actually connects) explains a lot about the confusing nature of your other posts
Again, I know what the PURE definition of socialism is. Here’s a quick response from AI about France being a socialist country:
France is not strictly a socialist country, but it has significant socialist elements within its political and economic framework.
How hard is it to understand that a VAT is much closer to socialism than it is to capitalism?
Socialists don’t like Vat because it’s a tax that falls equally on the poor and the rich. The poor pay a much greater percentage of their income on Vat than the wealthy because they have to spend everything to survive.
The rich can avoid VAT simply by buying from another country where there is no VAT (and little or no sales tax). That’s why a lot of BIG ticket items (yachts, planes, really expensive cars etc) are bought elsewhere.
Sure, the very rich manage to avoid many taxes. For everyone else it’s quite difficult though. Im sure some services are provided for cash payments,
Socialism is about collective ownership of means of production. Taxing consumption is something else, and is done by most countries including the USA with a sales tax.
I did not say it was a foundational construct of socialism. I just said it was associated with socialism more so than capitalism. Many parts of the EU, for example, demonstrate socialist like governments & social institutions.
Socialism is much broader than just central planning / ownership of the means of production.
The US has a very strong “not invented here” mentality and I can count a list of things that practically all other countries do differently than we do.
If you stop and think about it, there is usually a reason why everybody else might be doing some things differently. Typically because it’s better… but that strong “not invented here” mentality won’t allow us to even think about changing how we do things. Here are some major ones:
Universal healthcare coverage (note that I am not necessarily referring to a single payer system; there are many countries that achieve efficient and effective universal coverage without a single payer system)Consumption taxes in the form of value added taxesThe American Rule of Attorneys’ fees which encourages an overly litigious society (practically the entire rest of the world uses the English Rule, i.e., a loser-pays system)The metric system
Another difference is that the VAT in Europe is used to fund healthcare systems and social programs, while the tariffs in US are used to fund tax cuts for big corporations and the super rich.
What in the world are you talking about. Corporations that do pay the tariff without receiving a discount from the exporter, pays part of their profit to the Treasury, assuming they don’t increase consumer prices, in the form of a tariff. That’s not a corporate tax cut.
And the last I checked, Trump is talking about handing out tariff rebate checks to US citizens.
How exactly are tariffs funding corporate tax cuts?
Where’s Mish’s hoot of the day or his economically illiterate moniker?
To your initial question, he has no idea what he’s talking about.
Stand in front of a mirror, point to the guy in front of you and say that!
I’m sorry that pointing out your logical fallacies has resulted in you becoming defensive. It won’t fix your ignorance, but I bet it made you feel better. That’s all that matters.
I did, and I was quite happy with the response.
I was reminded that I’m a fairly smart guy who tries shoot ideas down the middle without exaggerating or being overly biased.
Thanks!
LOL. There were some tax cuts made permanent recently. Get that? If the tax cuts had ended, that would have meant more tax revenues. Since they didn’t end, the revenues from tariffs filled that gap.
That’s better. See, it wasn’t that hard to figure out. Atta boy!
Much better. Just say that the first time.
But everyone is getting a tax cut. Yes, the tax cut for the rich is larger numerically, but they do pay the VAST MAJORITY of taxes.
The bottom 50% only pay about 3% of all taxes, so it makes sense that the top 25% or so are going to get bigger tax cuts.
Go make more money, so you can get a bigger tax cut and all the while pay the majority of ALL taxes paid in the USA.
We lived in Europe for 5.5 yrs and those poor folks pay VAT on EVERYTHING! Electricity, natural gas, water, sewer disposal; then every time we ate out or bought groceries we paid the massive (20%ish) VAT (similar to our sales taxes). To say “VATs are tariffs” is just stupid talk. Please live overseas for a while before you show off your ignorance.
The last 2 Presidential elections , I have written in Thomas Massie. Mish, I am now strongly considering writing you in next Presidential election!
Value Added Taxes Are Not Tariffs, Nor Do VATs Act Like Tariffs
However Tariffs Act Like VATs in many circumstances
As provided the Brazilian Coffee 50 % Tarriff example
A 50% tariff on Brazilian coffee, imposed by President Trump, increases the cost of importing coffee into the U.S., which can function similarly to a value-added tax (VAT) in its economic impact. Like a VAT, the tariff raises the price of the affected good—coffee—at the point of sale, ultimately passing the cost to consumers. For example, if a bag of Brazilian coffee costs $10 before the tariff, a 50% tariff adds $5, making the imported cost $15. This higher cost is typically reflected in retail prices, much like a VAT applied at the point of sale increases the final price consumers pay.
However, unlike a VAT, which is applied uniformly across production stages and domestic/imported goods, the tariff specifically targets Brazilian coffee imports, affecting about 30% of U.S. coffee supply. This leads to higher prices for Brazilian coffee blends in U.S. stores and cafes, similar to how a VAT increases prices across the board. For instance, coffee roasters like Lost Sock Roasters in Washington, D.C., have noted that the tariff becomes a line item on import costs, directly increasing wholesale and retail prices. Consumers may face price hikes of 25-50 cents per cup, as seen with some coffee shops already adjusting prices due to the tariff. Thus, the tariff mimics a VAT’s price-increasing effect on consumers but is narrower, targeting only specific imported goods.
When Brazilian coffee becomes more expensive, demand may shift to non-tariffed sources (e.g., Colombian or Vietnamese coffee), increasing their prices as well. For example, if a $10 bag of Brazilian coffee rises to $15 due to the tariff, competing non-tariffed coffee may also increase, say from $10 to $12, as roasters and retailers adjust to market pressures.
This ripple effect mimics a VAT’s broad price-increasing impact, though the tariff’s initial trigger is specific to Brazilian imports,
Wrong
It does not act like a VAT – it acts like a tariff
But both are taxes, I will admit that
How do “you act like a Vat?” Isn’t acting like a Vat still a Vat? Explain.
In your coffee example, those non-tariffed coffee producers would be increasing their profit margin if they raised their prices at all as a result of the initial trigger of the tariff. The subsequent higher prices that those producers charge would therefore be due to profiteering not the actual tariff.
A Vat would be charged uniformly on Coffee per se. Regardless of its origin, domestic or international. All of the end consumer price increases would be government revenues and no seller would profit as a result.
There’s no favourtism or bias with a vat, there is with tariffs.
Easy, Edv, you’re playing semantics.
But, I agree. Good point.
He said it mimics the effects in terms of price increases on the items in question. I don’t see why that would be objectionable given its, you know, true at least unless and until all sourcing is replaced from elsewhere due to shifts in production
A Value-Added Tax (VAT) is a consumption tax
Consumers ultimately bear the tax, included in the final price.
In the example given, the Brazilian Coffee drinker pays the tax
perhaps initially not 100 % of it, and perhaps initially a small percentage
but over time the production and distribution chain will eat less of it
and the Consumer will pay more – probability is that over time the
Consumer will pick up 100 % of the tax
As I wrote above Thus, the tariff mimics a VAT’s price-increasing effect on consumers but is narrower, targeting only specific imported goods.
However, and again as I wrote, over time there is a ripple effect where due to supply and demand ( regardless of whether Brazil stays in the market or not ) all Coffee prices will rise which mimics a VAT’s broad price-increasing impact, though the tariff’s initial trigger is specific to Brazilian imports,
Brazilian coffee imports, affecting about 30% of U.S. coffee supply.
IF Brazil Exits the Market – 30 % of the supply is gone, competition will charge more – this triggers a broad price increase
IF Brazil Stays In – 30 % of the supply will have a greater charge, some of the consumers will ‘ switch brands ‘ this increases demand and therefore price of competition
Regardless when Brazil charges additional say 25 % to the Consumer the other brands all know they can charge say an additional 10 % – the consumer of course does price comparison when buying and thinks the competition is still a ‘ good deal ‘
What you don’t state is that this tariff directly affects Brazilian coffee and not any other coffee.
So if demand for Brazilian coffee drops (Brazil will never exit the market, only consumers decide that by either buying at a higher price or not buying at all), other producers can make up the lost supply (increasing their production).
So it’s HIGHLY likely coffee prices don’t rise because of that but instead Brazil is punished and forced out of the market. This is known as playing favorites.
Mish I will also remind you that
The distinction lies in intent and scope: simply put tariffs often protect local industries, while VATs are revenue-focused and neutral.
However, in the case of Brazil the tariff is not created to protect local industries, the tariff is created to punish Brazil for their relationship with Russia as a primary cause – as stated by President Donald Trump
My statements are simple, concise and factual
as such they are not able to be refuted
Value Added Taxes (VATs) are not tariffs, as VATs apply broadly to goods at each production stage, while tariffs target specific imports. However, tariffs, like a 50% tariff on Brazilian coffee, can mimic VATs by raising consumer prices, with ripple effects increasing prices of non-tariffed goods, though their scope is narrower.
If you believe that is incorrect, please point out any error
However it is noted, There Is No Error
.
The Logic looks correct, if applied to the example of increasing prices (even if to varying degrees between them). That does not make the VAT or tariff the same in other effects of course (which you don’t deny)
Thank you
Donald Trumps feud with Brazil is over his pal losing the election. Not about Russia. Concise and factual? I think not…
>
Trumps tariff on Brazil is a punishment for BRIC support
Brazil Russia India [[ Some want to Replace by Iran ]] China
US wants a regime change,
So yes Trumps ‘ pal ‘ lost the election and Trump is pushing for a coup to have him step back in
As I explained above, tariffs on Brazilian coffee are unlikely to push up the price off coffee. Consumers will just buy Colombian or Jamaican or some other coffee at a cost of $10. So the price will remain as $10.
Furthermore, I doubt Brazil gets punished other than selling to America. Instead they will just sell elsewhere since there is worldwide demand for coffee.
Consider world coffee market as 200 units and Brazil supplies 100, Colombia 50 and Jamaica 50. The US current buys 20 Brazil, 10 Colombia and 10 Jamaica. If the US now stops buying (due to tariffs) and instead increases Colombia and Jamaica by 10 each to 20 and 20 then someone else (say Canada+host of other countries) will now end up buy 20 more Brazil units and 10 less units of Colombia and Jamaica. In other words it will be a net zero in terms of world wide production and demand with the only shift being how much you buy from each producer.
So in the end who gets punished are US coffee drinkers who like Brazilian coffee.
They are categorically different things. One is a tax on exporting country; one is a tax on the importing country. If a country uses a progressive income tax to raise tax revenue, it’s not a barrier to trade. And yet, that progressive income tax is recovered in the pricing of its exported products.
Thanks for writing this. Mish sometimes likes to make blanket statements that may be true at the headline level but miss all the detail.
Is a tariff the same as a VAT? No
Can they be quite similar in effect. Yes