WH Aide Suggests Reciprocal Tariffs Also Will Cover VAT
In the fourth week of the second Trump administration, businesses awaited the details of what a reciprocal tariff approach could be -- and how fast the tariff schedule could be altered to have a different rate for every product that the U.S. exports to countries at a higher rate than the U.S. most-favored nation rate.
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Stephen Miller, a top aide to the president, gave hints of what it might look like in an interview on Fox Business, when host Maria Bartiromo asked if it's true that the tariffs won't just match other countries' tariffs on the same products, but also will cover the value-added tax.
A value-added tax, which is used in Europe and Canada, is similar to a national sales tax.
Miller replied: "Well, I don't want to get ahead of the president's announcement, but I do want to explain a very important point the president feels very strongly about. Other nations all around the world use the VAT to get an unfair trade advantage against the United States.
"Did you know when you ship a car from the United States 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 to America is taxed at 2.5% -- or basically 0. This is a major reason why the U.S. auto industry has been getting hammered and hemorrhaging jobs for so long.
"It is massively unfair treatment, and the president's making clear that we are going to pursue a policy of reciprocity. In other words, if we're getting charged 30% by Europe, we need to charge them 30% in return. If they want to be charged less than 30, they're going to have to lower their barrier, which is that it's fair and equal and, yes, reciprocal treatment."
A prominent voice on trade in the European Parliament told The Financial Times that the EU would be willing to drop its 10% tariffs on cars to 2.5%.
There are no details on what reciprocal trade approach will be used, or if it will only be against countries with whom the U.S. has a trade deficit, as some expect.
Trade attorney Ted Murphy wrote recently, "[W]e believe that by reciprocal tariffs Trump means aligning the U.S. tariff rate for articles with the rate charged by foreign countries to those same articles when imported from the United States. Since each country has its own tariff rates, this could get complicated. For example, if the United States currently has a 2.5% duty rate on widgets, and Country A has a 10% duty on widgets, Country B has a 7% duty, and Country C has a 9% duty, then, we think Trump is saying that the United States will increase its 2.5% duty to correspond to the rates of each country."
He said that would be particularly painful for companies that import from countries with higher tariff rates, either in the sector they import in, or overall -- such as India and China.
"In addition, given that so many articles are subject to 0% tariff rates in the United States, even a low tariff imposed by another country, could result in a significant cost increase to U.S. importers," he wrote.
Murphy said that even though Trump said he would announce his approach on reciprocal tariffs by Feb. 12, "we are not sure that reciprocal tariffs will be immediately imposed."
Murphy didn't address the logistical challenge of implementing a vast array of duty rates that vary based on trading partner. But he wrote, "It seems like the only option would be to negotiate a compromise rate that applies in both directions. In my example above, maybe the United States and Country A agree that widgets will now be tariff at 5% in each country (rather than 2.5% in the United States and 10% in Country A). Based on this, it seems that the threat of reciprocal tariffs going into effect X months from now, for example, might lead to deals getting done."