Why Trump Tariff Push Is Targeting Value-Added Taxes: Explained

President Donald Trump doesn’t like other countries’ value-added taxes.

Trump said Thursday that his administration would look at imposing “reciprocal” tariffs against other nations. They would be aimed at offsetting not only the tariffs those countries charge on US goods, but also other regulatory and tax measures that Trump regards as unfair to the US—including VATs, which many countries impose on the sale of goods and services.

In particular, Trump has criticized the European Union’s minimum VAT of 15%. He and his advisers have argued that VATs amount to unfair trade barriers that give the countries that impose them an unfair advantage and discriminate against US companies. “A VAT tax is a tariff,” Trump said Thursday.

But observers say that fundamentally misconstrues how VATs work. Trump’s tariff plan would damage the US economy and throw global trade into chaos, they say.

What is a value-added tax?

A value-added tax is a consumption tax that is imposed on every stage of the creation of a good or service, to tax the “value added” at that stage.

Say a mining company sells iron ore to a steel maker that uses it to produce steel. The steel maker sells the steel to an auto-parts company to make parts. The auto-parts company sells the parts to an auto maker, and the auto maker sells a car to the consumer. A VAT is imposed at each of those stages.

Businesses along that chain get a credit for the VAT that’s been paid, but the final consumer doesn’t. The consumer ultimately bears the brunt of the total VAT, which is added to the price of the final product.

Who uses VATs?

Most countries around the world have VATs. The UK imposes a 20% VAT. The EU requires its member states to impose a minimum 15% VAT, though many countries choose to impose a higher rate. The rates can vary by the type of good or service, and some are exempted, especially where goods are considered necessities.

The US doesn’t have a VAT. Instead, most states in the US have state and/or local sales taxes, which, unlike VATs, are assessed only once, on the retail sale to a product’s final consumer. And, as state and local taxes, they don’t contribute to the federal government’s coffers.

Why does Trump want to strike back against VATs?

Trump and his advisers have seized on the fact that VATs are charged on imports into the EU but not on exports out of the EU, trying to frame them as an export subsidy for EU countries and a tariff for US goods coming in.

“Other nations all around the world use the VAT to get an unfair trade advantage against the United States,” Stephen Miller, White House deputy chief of staff, said on Fox News Feb. 9.

But other observers point out that countries impose VATs on both their domestically produced goods and on imports, so they don’t discriminate or provide any advantage. VATs are border-adjusted and thus are “trade-neutral,” said Sean Bray, vice president of global projects at the Tax Foundation.

VATs are “not a tariff,” Bray said. “It’s somewhat unusual to lump them into a trade conversation.”

William Bain, head of trade policy at the British Chambers of Commerce, said there is “strong evidence that VAT is a balanced tax system which does not discriminate against imports compared with domestic production.”

Dan Neidle, founder of the London-based Tax Policy Associates, wrote on X that if the UK didn’t impose a VAT on imports from the US, then American goods and services would actually be 20% cheaper than UK goods and services. “So, the Trump claim is either dumb or dishonest,” he wrote.

How important are VATs to the countries imposing them?

Very important. According to the UK’s Office for Budget Responsibility, VAT is the UK government’s second-biggest revenue source, accounting for about 15% of revenues in 2024-25.

Inga Fechner, senior economist at ING Deutschland, said in a post on LinkedIn that VAT revenues accounted for 7.5% of gross domestic product in the EU and 18.6% of total tax revenue in 2022. That makes it extremely unlikely that countries could abolish their VATs to address Trump’s complaints, she said.