Trump announces tariffs on EU in retaliation to VAT

Donald Trump is taking a new step in his protectionist agenda. The U.S. president has decided to impose reciprocal tariffs on foreign trade, meaning imports from trading partners will be taxed at rates equivalent to those imposed on U.S. exports. However, Trump interprets structural, regulatory, and even fiscal obstacles as tariffs. In particular, he aims to target the European Union in response to its value-added tax (VAT), which applies to all products and is viewed by Washington as a non-tariff barrier.

The tariffs are not yet finalized and will not take effect immediately, reinforcing the idea that Trump intends to use them as a bargaining tool to curb the soaring trade deficit of the world’s largest economy. The measure could impact nearly all countries, with only those that do not impose tariffs on U.S. — only those that impose no tariffs on U.S. products are, in principle, exempt.

Trump on Thursday signed a memorandum in the Oval Office, setting in motion an administrative process for the U.S. Trade Representative (USTR), the Treasury, and the Department of Commerce to evaluate and develop the new tariffs. The full text of the memorandum has not yet been made public. This process runs parallel to the investigation he launched on January 20, his first day in office, into unfair trade and monetary practices, which is focused on countries with which the U.S. has a trade deficit.

The specific tariff amounts by country and their implementation dates remain unknown. Reciprocity will not follow a strictly symmetrical approach but will factor in all trade, fiscal, and monetary barriers the United States perceives as justification for tariff retaliation.

During his campaign, the Republican leader vowed to impose “an eye for an eye, a tariff for a tariff, same exact amount” on any country that charges a tariff on U.S.-made products. He reiterated this stance from the Oval Office last week. “Many of the countries that you feel so horrible about, the way they’re being treated by Trump — you’re saying, ‘Oh, President Trump is so terrible to them’ — well they charge us tariffs," said the U.S. president, who specifically mentioned VAT, describing it as similar to a tariff.

VAT is a consumption tax on domestic and foreign products and, in that sense, is not a protectionist measure, although products exported from the European Union are exempt from VAT and subject to indirect taxes in their destination markets, which are much lower in the United States than in Europe. Trump has also complained about subsidies for European agricultural products and health regulations. “The European Union has abused the United States for years, and they can’t do that,” he said earlier this month.

The U.S. trade deficit with the European Union — which Trump has targeted — reached a record high of $235.57 billion in 2024, surpassing the previous peak of $218.06 billion in 2022. The relative strength of the dollar against the euro has further boosted the competitiveness of European products.

The proposed tariffs appear to be a negotiating tool. In a recent speech at the White House, Trump said: “The United States has been ripped off by virtually every country in the world.” His administration argues that the U.S. is an open economy — the goose that lays the golden eggs, as Trump put it — from which the rest of the world has long benefited.

A campaign promise

Trump had tried to impose reciprocal tariffs during his first term. At that time, the Republicans introduced a bill in Congress, but it did not pass. The proposal considered two possible outcomes: either other countries would lower their tariffs on U.S. goods, or Washington would raise its own. However, implementing reciprocal tariffs would effectively dismantle the most-favored-nation clause that underpins World Trade Organization (WTO) rules.

One of the countries most vulnerable to strict reciprocal tariffs is India. Indian Prime Minister Narendra Modi is set to visit the White House on Thursday. In an effort to appease Trump, Modi has already reduced tariffs on certain goods and expressed willingness to increase energy imports from the United States. Other nations that impose higher tariffs on U.S. products than the U.S. include Vietnam, South Korea, Thailand, Taiwan, and Brazil.

Reciprocal and universal tariffs were among his most prominent campaign promises; however, the 25% tariffs on Mexico and Canada that he approved (and later postponed until March 4) were not included. For China, he pledged a sweeping 60% tariff on all imports, though so far he has implemented only a 10% rate. And he was also forced to suspend tariffs on imports under $800, such as those from Shein and Temu, due to logistical challenges in processing them.

On Monday, Trump imposed 25% tariffs on aluminum and steel with no exceptions, effectively escalating the trade war on a global scale. Other industries — including oil, semiconductors, copper, and pharmaceuticals — are expected to be next.

The U.S. trade deficit is surging. Imports accelerated in late 2024, partly as businesses rushed to get ahead of Trump’s tariff policies. By year’s end, the U.S. had imported a record $3.29 trillion worth of goods, including record-high imports from Mexico, while exports totaled $2.08 trillion. This resulted in a record trade deficit of $1.21 trillion — up from $1.06 trillion in 2023 and surpassing the previous peak of $1.17 trillion in 2022.

Nearly half of this trade imbalance stems from the three countries Trump has targeted first: China, Mexico, and Canada. The U.S. trade deficit with Mexico reached a new high of $171.19 billion in 2024, while the largest gap remained with China at $295.4 billion. With Canada, the deficit stood at $63.34 billion.

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