The Double Standard on Trade: Tariffs vs. VATs

TLDR: don’t read it if it’s not important to you.

A fierce debate rages in economic circles over tariffs—taxes imposed on imported goods that are frequently criticized for raising consumer prices and causing inflation.
Free trade advocates often argue that tariffs are inherently harmful, increasing costs for consumers while failing to protect domestic industries in a meaningful way.
However, a curious contradiction emerges when the conversation shifts to Value-Added Taxes (VATs)—a form of taxation used by many of America’s top trading partners, including the European Union and China.
Unlike tariffs, VATs are not just accepted by free traders—they are often praised as an effective and efficient tax system. But in reality, VATs disadvantage American exports far more than tariffs do and play a significant role in distorting global trade.
So why do global economists and policymakers rush to condemn tariffs but remain silent on VATs? The answer lies in the way VATs are structured, creating an uneven playing field that punishes American manufacturers while favoring export-driven economies abroad.
How VATs Put the U.S. at a Disadvantage
A VAT is a consumption tax imposed on goods at each stage of the supply chain, from raw materials to the final retail sale. Unlike sales taxes in the U.S., which are charged only at the final point of sale, VATs embed additional costs throughout the entire production process—a cost that ultimately gets passed on to consumers.
For American businesses selling goods overseas, VATs function as an import tax, raising the final retail price of U.S. products in foreign markets. For example:
•In the European Union (EU), VAT rates vary, with Hungary imposing the highest at 27%, while Germany’s standard VAT rate is 19%.
•China applies a tiered VAT system, with a standard rate of 13%, while certain industries such as transportation and financial services enjoy reduced rates of 9% and 6%.
•When an American product enters these markets, these VATs are added on top of the sales price, making U.S. goods more expensive compared to locally produced alternatives.
The real kicker? Many countries that use VATs exempt their own exporters by rebating the VAT when products are sold abroad. This means foreign competitors receive a tax break when selling internationally, while U.S. goods are taxed upon entry into their markets.
VATs Are More Harmful Than Tariffs—So Why the Hypocrisy?
Despite their clear disadvantages for American exports, VATs rarely receive the same level of scrutiny as tariffs. In fact, global trade organizations and free-market economists often praise VATs, arguing that they are a fair and efficient way to collect government revenue.
However, their real effect is the opposite of free trade—they distort global markets and encourage countries to prioritize exports over domestic consumption.
Unlike tariffs, which target specific imports, VATs apply to nearly all goods and services, creating a far broader inflationary impact. This means that while a tariff may raise prices on select items, a VAT increases costs across the entire economy—from basic necessities like food and clothing to high-end manufactured goods like cars and appliances.
Trump’s Tariff Strategy: A Response to Unfair Trade Practices
During his presidency, Donald Trump championed tariffs as a way to counterbalance foreign economic policies that harm American industries. Critics claimed his approach would spark a trade war, but Trump argued that tariffs were necessary to level the playing field against countries that manipulate trade policies to their advantage.
In contrast, current free-trade advocates argue that tariffs create inflationary pressures and hurt American consumers. Yet they ignore the fact that VATs do the same thing on a much larger scale—only in a way that benefits foreign exporters at America’s expense.
If tariffs are to be criticized as harmful because they raise consumer prices, then VATs deserve the same level of condemnation. Yet, the mainstream economic consensus remains silent, choosing instead to promote a system that protects foreign industries while leaving U.S. manufacturers at a disadvantage.
The Bottom Line: America Must Fight Fire with Fire
The current global trade system is not a model of true free-market competition—it is a system rigged in favor of export-driven economies that use VATs as a form of hidden protectionism.
If the U.S. hopes to compete on equal footing, it must be willing to use tariffs strategically to counterbalance the effects of VATs.
Rather than blindly accepting economic dogma that dismisses tariffs as harmful, policymakers must recognize the reality that VATs have already turned global trade into a one-sided battle.
Until the playing field is leveled, the United States must be prepared to respond in kind.
Source Breitbart