In a recent memorandum, President Trump criticized value-added taxes (VAT), labeling them as 'unfair, discriminatory or extraterritorial taxes' that place a burden on U.S. consumers and businesses.

He argues that these taxes significantly contribute to the nearly trillion-dollar trade deficit the U.S. faces with other countries.

A common example highlighted by the Trump administration is the disparity in taxes faced by U.S. cars exported to Europe compared to European cars exported to the U.S.

However, analysts from Wolfe Research point out that while U.S. goods are subject to higher taxes in Europe, they are not at a disadvantage compared to European goods, as both are treated equally under consumer tax regulations.

The U.S. is unique in that it is one of only 19 countries that impose a single-stage sales tax, which is only paid by the end consumer, unlike VAT which is applied at each stage of the supply chain.

Despite claims from over 170 countries that VAT does not provide a competitive advantage, past U.S. administrations have challenged the European Union's use of VAT, seeking tax breaks for U.S. exporters.

The EU has opposed these requests, leading to World Trade Organization rulings that deemed such tax breaks unlawful export subsidies.

Experts suggest that Trump may use complaints about VAT to justify implementing higher reciprocal tariffs, particularly against the EU, with an announcement anticipated on April 2, 2025.

Research indicates that matching tariffs with VAT could lead to a 1.40% decrease in GDP and a 1.36% increase in inflation, with retaliatory measures potentially raising these figures to 1.72% for GDP and 1.46% for inflation.

Adjusting VAT calculations to consider the average U.S. sales tax could significantly mitigate the potential economic impact of these tariffs, although this perspective is not commonly emphasized by the Trump administration.