Tariffs for VAT? An Explainer
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Europe in Flux

Tariffs for VAT? An Explainer

/ Essay

A recent memo from the US administration explains that the rationale behind tariffs is about achieving reciprocity. An unfair advantage arises, the memo argues, not only from other countries’ higher tariffs on US goods and services but also taxes, including value-added tax (VAT). It claims that VAT taxes applied by other countries put US exporters at a disadvantage. This is incorrect. We explain why.

Key Insights

A recent memo from the US administration explains that the rationale behind tariffs is about achieving reciprocity. An unfair advantage arises, the memo argues, not only from other countries’ higher tariffs on US goods and services but also taxes, including value-added tax (VAT). It claims that VAT taxes applied by other countries put US exporters at a disadvantage. This is incorrect. We explain why.

Key Insights

  • VAT is a neutral consumer tax applied to all goods sold domestically, while tariffs selectively penalize foreign imports by raising their prices.
  • Shifting taxation from corporate and labor taxes to VAT has shown to enhance long-term economic growth and competitiveness, with 175 countries worldwide adopting VAT systems.
  • The EU’s average corporate tax rate matches that of the US, contradicting the idea that Europe enjoys a corporate tax advantage at the expense of the US as a result of applying VAT.

Author

Maria Demertzis

Maria Demertzis Maria Demertzis

Economy, Strategy and Finance Center Leader, Europ…
The Conference Board

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