Well those economies do those things (EU exempting exports from certain taxes etc.) because they think it helps.
That’s a lot of countries thinking it provides them an advantage. Is this really one of the cases where the dominant wisdom is wrong?
Yeah, and we do that stuff too. But things happening INSIDE the country doesn’t have that much of an effect on trade BETWEEN them as Tariffs.
Except China. They use the power of the government to distort global markets for ecoomic and geopolitical advantage.
But the EU not taxing exports…that’s just their own decisions on revenue and domestic policy. More similar to our subsidizing the farming industry.
Longer-term the US has a “lack of savings” problem.
In the short-term we have a (quite pronounced) misallocated resources problem.
Deficits, printing money, & most taxes exacerbate those problems. Consumption based taxes (like tariffs and VATs) help alleviate them.
1.) I don’t know uf the EU refunds/exempts all exports from their domestic raxes or just some Either way, if Donald Trump proposed a similar measure here he would (rightly) be accused of a backdoor tariff.
- The US certainly should reduce spending, but most farmers sell into a relative monopsony. Regardless of import/export questions, monopsony is market failure and even free market ideologues like myself concede the case for intervention when markets fail.
My point is, within our borders all countries have policy that affects markets. But they are largely irrelevent to the tariff conversation which deals with markets between countries.
I like how you phrased that.
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Except a tariff is not a consumption tax unless you accept the premise that tariffs increase domestic price levels.
They don’t fail to tax exports because they think it helps. The VAT is a point-of-sale / destination tax. Taxing the export would be double-counting the tax.
It that is “double-counting” the VAT is always “double-counted”
For non-exports:
The VAT applies once, and only once to the added value at each step.
For exports:
is not charged a the final step. (In some cases earlier accumulated VATs are actually REFUNDED on exports.)
The VAT (rates below) runs as high as 27% in several EU countries.
It is their main form of taxation, much like ours is a hodge-podge of FICA taxes, employee income taxes and corporate taxes.
Exempting the VAT on all exports is not a small thing.
It is no different than declaring “Ford, you don’t have to pay any of our most major taxes on any car you make for export.”
It is a very serious repudiation of free-trade.
You don’t understand how a VAT works. It’s not a tax on production - it’s a point of sale tax. The point of sale for an export is the country in which is sold. The input costs are all taxed in the country of export. the final sale is taxed in the country of import.
I never said it is a tax on production.
It is exactly what i think it is. A taxon the added value at each step.
Except . . . if the item is exported then the added value at the last step is not taxed. The exemption is a non-tariff protectionist barrier against free trade.
In the US we tax labor and profit at each step.
If we changed that and taxed labor and profit at each step except . . . if the item is exported then the labor and profit at the last step is not taxed, then our exemption would be a non-tariff protectionist barrier against free trade.
Volkswagon buys $2,000 worth of steel and $2,000 worth of electricity to make a $22,000 (wholesale price)car.
If they sell it to a European dealership they pay a 19% tax VAT on the $18,000 markup.
If they sell it to a US they pay zero tax on that added value even though they added value. Hmmm/
(It’s not unheard of for cars to sell for less in the US than in Europe. If Donald Trump did anything similar many honest people would call that “dumping” and portray him as anti-free trade.)
VW pays a VAT on those inputs. VAT (point of sale) revenue flows into Germany.
VW sells that car to Claude. VAT (point of sale) revenues for the sale of the car flow into Germany
Germany exports that car to France. France sells that Car to Francois. VAT (point of sale) revenues flow into France.
Germany exports that car to the US, the US sells that car to Todd. Sales tax (point of sale tax) revenue flows into the United States.
Paying the VAT at the final point of sale harmonizes it over the trade region. It doesn’t make anything cheaper.
The VAT is charged on every “point of sale” unless the buyer declares “this is for export” then it is not charged.
Functionally it is no different then charging a FICA tax, and income tax a corporate profit tax etc. but not charging that tax if the product is exported.
It’s as easy and as obvious as 1… 2… 3
Same car,
- over $59,000 in Germany
- under $48,000 in the US
And why is the car cheaper in the United States? Because in Germany they are collecting a larger point of sale tax on the final sale.
Under your view Germany should pay a VAT because VW put a car on a boat.
In both the German sale of a car and the US sale of a car, a point of sale tax is applied (though in Germany the tax is probably embedded in MSRP)
Final point of sale is when it leaves the factory, goes to the harbor and becomes property of the import/export agent etc… (But Europe chooses to exempt that transfer.)
If autos made in the USA for export
were subject to
- zero income taxes on labor
- zero FICA taxes on labor
- zero corporate profit taxes
you would correctly identify that as a form of dumping,
a non-tariff barrier to free trade.
It’s not English !! 
Final point of sale is when the new vehicle is sold to the final buyer. It is taxed at that point of sale. All the component inputs are taxed at their point of sale - in the taxing authority in which they are located.
Why would an American car seller based in America collect a German sales tax?
In international trade, title goods changes hand when the factory delivers the goods to the harbor master. (most common shipping methods are FOB, CIF but this also applies to other methods) These have been the standard terms fora century or more.
the harbor master will even not load the goods until they have been paid for (letter of credit and bill of lading.)
IOW the harbor is the final sales point. But European countries grants a special tax exemption to all goods delivered to harbor for export.
It is clearly a tax subsidy, a non-tariff barrier to free trade. I can only imagine why some people pretend otherwise.
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