The UK is facing a threat of import tariffs of as much as 24% if US President Donald Trump’s administration adds VAT rates on top of tariffs.
Consultancy Capital Economics’ warning comes as the White House has said that it would look at how countries impose “unfair, discriminatory, or extraterritorial taxes imposed by our trading partners on United States businesses, workers, and consumers, including a value-added tax”.
Paul Ashworth, chief North America economist at Capital Economics, said: “Most people would consider VAT to be a non-discriminatory tax, since it is also applied to domestically-produced goods making a level playing field. But [the president’s] adviser Peter Navarro has been pushing the line since Trump’s first term that, since the US only applies a much lower average sales tax at the state level, this is a form of discriminatory tariff.”
So if the US imposes reciprocal tariffs that add VAT rates and MFN tariff rates together then, in order of severity, India (29%) and Brazil (28%) would be hit hardest, followed by the EU (25%), UK (24%), Mexico (23%) and Canada (19%).
The Guardian reported that the “winners” would be Singapore (9%), Taiwan (12%) and Korea (13%). The average effective tariff rate on all US imports would rise from less than 3% now to around ~20%. That would add roughly 2% to US consumer prices, meaning that inflation would temporarily rebound to 4% later this year.
