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Politics : The Trump Presidency
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To: bentway who wrote (4650)1/5/2017 2:35:36 PM
From: TimF  Read Replies (1) of 358586
 
As Worstall points out rather well, a VAT isn't' a straight up trade barrier. Neither a US seller to Europe, nor a European seller to the US has to pay the European VAT for the product sold.

OTOH the European producer would be encouraged to export by the fact that he doesn't have to pay the VAT on exports but does for domestic sales.

Also if products are more expensive you could suppress demand in Europe relative to the US, resulting in a boost of exports from Europe relative to exports from the US. But that last point is pretty weak, since its not like the US doesn't have taxation, and the taxes the US does impose can indirectly have a similar effect. If you tax the consumers income he or she has less left over to buy things with. If you tax companies profits, they have less incentive to invest (the after tax rate of return on the investment will be less) resulting in less production capacity (so less ability to produce for export or fully satisfy the domestic market), and/or less efficent production (making the goods more expensive and thus less desirable), or less improvement in product (again making the goods less desirable); unless they can jack up the price to compensate, and if they can then the higher price directly reduces demand (and can create lower revenue, which feeds back on to lower profit).
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