Trump Says VAT Systems Will Be Treated as Tariffs When Deciding Reciprocal Duties

President Donald Trump at the White House on Feb. 10, 2025. Andrew Harnik/Getty Images

President Donald Trump said on Feb. 15 that he will treat value-added tax (VAT) systems—widely used in Europe and other countries—as equivalent to anti-U.S. tariffs when calculating trade levies. The move is part of his reciprocal tariff policy aimed at countering what he describes as unfair trade practices.

“For purposes of this United States policy, we will consider countries that use the VAT system, which is far more punitive than a tariff, to be similar to that of a tariff,” Trump wrote in a Feb. 15 post on Truth Social.

The policy is the Fair and Reciprocal Plan, launched on Feb. 13. It seeks to match tariffs and trade barriers imposed on U.S. exports by other countries.

According to Trump, foreign nations have long taken advantage of the United States through higher tariffs and restrictive trade policies, harming American businesses and workers.

“For many years, the U.S. has been treated unfairly by other countries, both friend and foe,“ Trump said in the Oval Office on Feb. 13. ”This system will immediately bring fairness and prosperity back into the previously complex and unfair system of trade.”

A White House fact sheet highlights that U.S. exporters face higher tariffs in more than two-thirds of cases across 132 countries and 600,000 product lines. While it does not explicitly mention VAT, the fact sheet references “unfair, discriminatory, or extraterritorial taxes” that inflate costs for U.S businesses, workers, and consumers.

A memo signed by Trump on Feb. 13 clarifies that his reciprocal levies will apply not only to traditional tariffs but also to non-tariff barriers such as burdensome regulations, digital service taxes, and VAT systems.

The White House fact sheet specifically calls out Canada and France, which impose digital service taxes that cost U.S. firms more than $2 billion annually. In a call with reporters, White House officials also cited the European Union’s VAT, which applies to both domestic goods and those imported from the United States and averages 21.8 percent across the bloc.

Unlike a sales tax—charged only at the point of sale—VAT is applied at every stage of production and distribution, increasing costs for U.S. goods entering VAT-using countries. The White House says that VAT effectively triples the EU’s tariff rate on U.S. exports, creating a “double whammy” when combined with subsidies that boost EU exporters.

In his Truth Social post, Trump defended his reciprocal tariff approach as a simple, fair policy that holds foreign governments accountable.

“It is fair to all, no other country can complain and, in some cases, if a country feels that the United States would be getting too high a tariff, all they have to do is reduce or terminate their tariff against us,” Trump wrote. “There are no tariffs if you manufacture or build your product in the United States.”

Trump further clarified that his administration will factor in foreign subsidies that give non-U.S. exporters a competitive edge. He also introduced the concept of “non-monetary tariffs,” referring to hidden trade barriers that increase costs for U.S. businesses even when formal tariffs aren’t in place.

According to the Organisation for Economic Co-operation and Development (OECD), at least 175 countries use a VAT system, making it a deeply embedded tax structure worldwide. The United States is the only OECD country without a VAT, instead relying on state-level sales taxes, which range from zero percent to 11.5 percent.

ING economist Inga Fechner noted that while some countries may lower their tariffs to U.S. levels to avoid Trump’s reciprocal levies, it’s unlikely they will go so far as to eliminate their VAT regimes.

“Countries could, in principle, lower their tariffs to U.S. levels,” she wrote in a Feb. 14 note. “However, abolishing the VAT system is extremely unlikely.”

Fechner also pointed out that Trump’s policy goes beyond just tariffs and VAT.

“Avoiding tariffs, therefore, seems to be an impossible task,” she wrote, emphasizing that Trump’s memo targets broader non-tariff barriers and other market access restrictions.

Several countries have vowed to respond with retaliatory tariffs if Trump moves forward with his reciprocal trade policy.

Trump has already imposed a 10 percent tariff on China-made goods, prompting retaliatory measures from Beijing. He also applied a 25 percent tariff on Canada and Mexico, although enforcement was delayed for 30 days after negotiations on border security and crime reduction.