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Comment by arghwhat

7 days ago

Here in the EU, you'd generally just pay VAT of imports. And to be clear, we pay the same VAT on internal goods.

To make it convenient for consumers, large foreign platforms would automatically handle VAT at point of sale, reducing friction and thereby pushing more import.

Some specific things had tariffs - e.g., nuclear reactors, and chinese electric cars - but it was by no means the norm, and I don't think citizens liked this. The Chinese car tariff in particular feels like German automotive lobbying, stifling competition. Tesla, pre-DOGE, also showed that we would have an unsatiable hunger for import of competitive cars, it's just that an F150 isn't a competitive car in EU.

Now, because if the trade war, we end up with blanket retaliatory tariffs and a strong push for buying local products, killing imports, that just wasn't there before. US and China was already in a trade war, so I guess that was the current state of affairs there.

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arghwhat

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Andrew_nenakhov  7 days ago

> And to be clear, we pay the same VAT on internal goods

This isn't a fair comparison. Local produces also have VAT reduced by the value of goods they bought locally, so it is not such a burden for a local producer vs importer who doesn't benefit from such VAT reduction at all for his costs.

  • arghwhat  7 days ago

    > Local produces also have VAT reduced by the value of goods they bought locally, so it is not such a burden for a local producer vs importer who doesn't benefit from such VAT reduction at all for his costs.

    Huh? VAT is transparent to all involved companies regardless of import/export in such a way that the final transaction to a consumer cover the whole VAT of the value chain.

    A quick VAT tutorial:

    ---

    The local producer buys seeds, and pays a price that includes VAT. They then sell crop for a price that includes VAT. The difference is settled with the government: The local producer gets back all the VAT they paid, and instead give the government all the VAT they collected.

    A reseller buys local produce at a price that includes VAT, and sells it at a price that includes VAT. They then get back all the VAT they paid (which is exactly what the government got from the local producer from this exact transaction!), and in turn give the government VAT they collect from the final consumer.

    In the end, the amount of VAT retained by the government is exactly the price paid by the last recipient of the goods. No company in the chain ended up paying VAT out of their own pocket, and no other government earned VAT.

    ---

    Now try with imported goods: The foreign producer buys seeds at a price that includes their local VAT. They then sell crops for export at a price with no VAT. The producer gets back all the VAT they paid, and give nothing to their government as they collected none during export.

    The reseller buys the foreign produce at a price without VAT and instead report and pay VAT themselves to initiate the VAT chain. They sell it at a price that includes VAT. They get all the VAT they paid back, and in turn give the government the VAT they collect form the final consumer.

    In the end, the amount of VAT retained by the government is exactly the price paid by the last recipient of the goods. No company in the chain ended up paying VAT out of their own pocket, and no other government earned VAT.

    Granted, the importer's country is the one stuffing their pillows with the VAT, which does not benefit the foreign producer. That's the difference.

    • Andrew_nenakhov  7 days ago

      Hey, thanks for the tutorial, I’ve been running my company and paying VAT for only 20 years, so finally I'll know how it works! But, kidding aside, your breakdown is fine in theory, but it misses the real world sting for a US exporter selling to Europe. US goods start outside the VAT system, no offsets, just raw costs. When they hit Europe, the importer slaps VAT on top, jacking up the price before it even gets moving. Local producers? They’re already in the game, balancing input VAT with what they collect. So from the US point of view it is virtually indistinguishable from tariff, making US stuff pricier than the local competition.

      Take two producers - one US, one local - selling their identical products at $100. US costs are $80, all out of pocket, no VAT relief, US producer's profit is $20 after the importer adds 20% VAT ($20) to reach $120.

      The local guy’s $80 includes 20% VAT on inputs ($13.33 reclaimable), dropping his real cost to $66.67. He sells for $100, collects $20 VAT (total $120), then pays the government $6.67 ($20 collected minus $13.33 reclaimed). His profit’s $26.67 - still 33% more than US's $20, thanks to VAT offsets.

      You have to agree that this is a very tangible advantage for local companies, no?

      1 reply →

clarionbell  7 days ago

Actually, EU countries have pretty high tariffs for some US exports, and other countries too, higher than US used to have until today.

That's how the common market remains competitive. We lower barriers for trade inside EU, while protecting our market from outside exports. Data is all available. Cars for example, US had tariff of 2.5%, EU 10%.

  • myrmidon  7 days ago

    > Cars for example, US had tariff of 2.5%, EU 10%.

    This is highly misleading:

    Pickup trucks, which is a major share of the US car market, had an import tariff of 25% since 1964 (so it was pretty much the same average tariff level but with the EU doing less targetting).