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.
> 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.
> 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:
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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.
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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.
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?
The case for the local guy is not calculated correctly for EU VAT, leading to the misunderstanding. The cost of the input increases proportionate to VAT, with the VAT refund cancelling this out exactly.
Let's assume as you did that the actual input has the same real cost to manufacture (ignoring e.g. local labor cost differences, fuel cost differences, government incentives, etc.), and that your example therefore needs exactly 80 USD worth of real, untaxed input in both cases.
The US producer buys this for 80 USD out of pocket as there's no VAT to pay, adds 20 USD profit and sells it for 100 USD. An importer adds 20% VAT, making it 120 USD.
The local producer has to pay VAT so their price for the same thing is 96 USD out of pocket. They get 16 USD VAT back from the government next time they file VAT (irrespective of what they sell), i.e. the "relief" undoes the VAT entirely. They add 20 USD profit making the price 100 USD, add 20% VAT, and what do you know, same 120 USD price tag.
In both cases the final consumer price is 120 USD, and after VAT is cleared the input seller gets 80 USD, the producer itself gets 20 USD profit and the government at the point of consumer sale gets 20 USD VAT.
If the local guy exports the goods to the US the VAT is refunded, making both prices 100 USD. Input seller earns the same, profits remain 20 USD, but no VAT is earned.
This is also why all companies only discuss prices excluding VAT, as the VAT is purely symbolical if it's not a consumer sale.
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%.
> 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).
The funny thing is that we actually have a quite big commercial market for such utility vehicles, currently met by dropside vans: vehicles built on a van frame with a flatbed or other custom equipment on the back.
This is not really that different from how the F-series works either, providing a frame where the rear can be built up dependent on needs.
It's just that the F-150 is a terrible fit. Our dropside vans are small with a very large footprint-to-bed ratio, is light and have low fuel consumption, is almost always custom, and has zero luxury or otherwise private appeal. There is no demand for e.g. engine performance, as the light vehicle class has load and towing limits that are easily met.
The F-150 is too bulky for casual city use and without a need to optimize have a low footprint-to-bed ratio, is heavy with and thirsty, is often just used "as is" with the stock bed, and is often used privately with a significant "muscle" appeal. In order to be driven with a regular license and not be affected by truck speed limits, tracking requirements and driving/rest time limits, it would still be registered as a light vehicle, making any additional load bearing/towing capacity unusuable.
There's nothing wrong with models being extremely optimized for specific markets and unfit for others. I imagine there aren't many EU-style dropside vans in the US, not to mention EU-style trucks. Japanese Kei cars are an even more extreme case of such market optimization.
I drive a Mercedes W447 in the US (though the "crew" version) and get no end of crap from people around me with F150's and the like (I live in an area that is borderline rural/urban and has a ton of farming). Meanwhile I have a larger hauling capacity, get vastly better mileage, have 8 seats when I want them, etc.
It's too bad no-one bought these and they went away.
Amusingly the Postal Service in our area drives them now.
Something like this or an electric van would be amazing. However, does everyone always want to borrow it? I don’t think I own anything that wouldn’t fit in a vehicle like that.
> The idea the pickup trucks are wanted in Europe is hilarious.
While demand is much lower than in the US, it's still not zero.
But I'm talking about US import tariffs, not EU.
"Light trucks" have like 80% market share in the US; if you have 25% tariffs on those (for over 60 years now, too) then there is no room to complain about 10% car tariffs in the EU, full stop.
You could make a strong argument that Fords dominance in the segment was significantly helped by protectionism (without those tariffs Ford etc. would face much stiffer foreign competition).
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.