The free trade consensus is quick to denounce tariffs. We’re told tariffs are bad because they raise consumer prices. They are a tax on consumers. They cause an inflationary supply shock. This orthodoxy insists that tariffs are damaging by their very nature, and that their primary effect is to harm the very consumers they purport to protect.

But here’s where things get interesting: introduce a Value-Added Tax (VAT) into the mix, and the entire calculus changes. VATs are not just tolerated by the free trade crowd; they are often praised. But what exactly is a VAT? It’s a tax applied to domestic consumption that raises prices on a much broader array of goods than any tariff ever could. It’s a tax that hits everything from bread and milk to automobiles and appliances.

Foreign VATs are particularly harmful to U.S. exports, imposing additional costs that make American goods less competitive in international markets. In the European Union (EU), member countries apply standard VAT rates to imported goods, including those from the United States. These rates vary across the EU, with Hungary imposing the highest standard rate at 27 percent, followed by countries like Denmark, Sweden, and Croatia at 25 percent. Germany, a key trading partner for the U.S., maintains a standard VAT rate of 19 percent.

China, another major destination for U.S. exports, employs a tiered VAT system. The standard VAT rate is 13 percent, applicable to most goods, while reduced rates of nine percent and six percent apply to specific categories of products and services. For instance, the nine percent rate covers sectors such as transportation and construction, whereas the six percent rate pertains to financial and consulting services.