I bet against this, but future will tell. (bookmarked & set reminder to 18 months)
Afraid but you donât understand VAT.
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Not much to add
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You absolutely do not understand how VAT works. I completely agree with the others here.
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I am very ambivalent, dare say confused about whether this is some brinkmanship with a plan vs total total stupidity and plain meanness.
Itâs consistent with the narrative but the narrative has so many economic fallacies baked it I struggle to believe it. Hereâre some thoughts:
- you need to burn a field/dig a hole to build a house, or break eggs to make omelette
Maybe thereâs a master plan to MAGA, and some expected pain in the US (heâs said that already) to come out stronger.
Maybe heâs really that ignorant and mean that his advisors simply have become yesmen and sycophants in fear of their careers, as has his party.
Maybe he really wants to crash the market so his backers buy everything at a discount in exchange for loyalty (as long as heâs alive). This is plausible as I saw it in my own country, but itâs so mean and immoral that stumps even my cynicism. I mean the people pushing for Grexit with millions in other currencies abroad really were scum.
My last resort of hope is that as a narcissist he wonât tolerate for long the immense backlash heâll have at home, so if (when) the âplanâ stops working I hope heâll do a 180, and then make up a story why it was a good decision. Works for me. Dictators rarely get done by their people unless their backers remove backing.
Frankly I can wait 18 or 36 or 42 months, if my jobâs ok then all is ok so Iâll continue putting my efforts there.
And dividends, dirty dividends are very motivating, even poor little VWRL dividends:)
It really is 2020 again isnât it? 
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AAII is at year low. This should be a contrarian indicator.
Plus traffic on this chronicles of the lean years thread has suddenly got a lot of attention while there was little activity when it was initiated in February.
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My opinion is following
For US -: in a very weird / unconventional way, it seems that government is trying to reduce their debt and deficit. DOGE & Tariffs are their tools. It might or might not be the best way . But at least the objective is not bad. US debt is a ticking time bomb, so it needs to be addressed. I think over a long term it should improve strength of US economy
For ex US -: itâs clearly a wake up call. To have their own policies , own national interests, own foreign relations and own objectives. After being hit so hard, most countries (unless they are crazy) will need to find long term solutions to diversify away from US dollar assets , diversify away from US military envelope and also reduce dependence on US as a consumer as well as major supplier.
Specially for EU -: yes Europe will suffer from export reductions. They will lose access to a big market but itâs not the end of the world. The main learning here is to build regional sovereignty in terms of technology, AI, defence and sustainability.
All of the above means that we donât know this move from US will turn out to be good for US, for ex-US or for everyone in intentional or unintentional way. It can also be a net negative but I donât really think so. Losing a big customer is bad but itâs cannot be so bad. International diversification will play its part and hopefully things would balance out.
The only concern I have is if we end up into asset freezing etc . This would be catastrophic for many investors as we are overly exposed to US assets through equity investing. I hope it doesnât come to that.
One thing is for sure - itâs end of an era for US exceptionalism. Even though US have produced some great companies, I donât think they will be seen in same positive light for many years to come.
Please, may I ask the participants here to bring arguments. OK,so I donât understand how it works, but you cannot explain where is my fault. And I think after more than a decade paying VAT and even dealing with its predecessor WUST in Switzerland I know exactly how it works, every detail.
But this is not an argument against what I said: VAT and tariffs are exactly the same from the viewpoint of import/export. Not all tax can be added to a selling price and when it cannot be added the one that has to sell the same product to a lower VAT country has an unfair advantage. And if it can be added and consumers in both countries are willing to pay the higher price the unfair advantage is even bigger.
VAT is based on the misconception that you can simply add tax to everything without changing the rest of the game. On a national level this may lead to bankruptcy and on international level it leads to unfair advantages/disadvantages for import/export.
But anyhow, we know now what misconception the new tariffs are based on, and it is not VAT.
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I think as everyone already said, itâs neutral internationally. Access to markets is fair for everyone.
Manufacturer A in country A with VAT. Manufacturer B in country B without VAT.
Cost of manufacturing is identical in both countries, it costs 100 currency to make a widget. VAT is 10%, widget is sold 200 currencies (pretax).
Country A:
- company A: sells the widget for 220, margin is 100
- company B: sells the widget for 220, margin is 100
Country B:
- company A: sells the widget for 200, margin is 100
- company B: sells the widget for 200, margin is 100
Country of origin doesnât matter, fiscal pressure in country A is higher so potentially demand could be lower (assuming all other taxes are equal, if B has higher income tax, it could just be a wash)
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One worrying thing for the US is not being able to attract international talent, and that talent making it happen elsewhere, thatâd be big. As racism gets institutionalised people will not want to put up with it, and thatâd be Europeâs gain, if itâs smart enough to capitalise on it.
If people of color, women, not straight and basically any foreigner starts feeling unwelcome in the US theyâll simply not go there anymore.
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This.
The biggest shift for the US economy, for me, is that they are making the US a place that isnât a desirable place to live in for a very big chunk of the world population, which includes a very big chunk of the worldâs top talents.
Part of the success of the US is that they have attracted the best brains on the planet, and had a huge opportunity of it, which they seized, with WWII.
It doesnât need to be a very quick and very sharp decline, there can still be good years ahead but if they pursue with their policies of political uncertainty, reluctancy toward science and sizeable parts of the world population not being able to feel safe presenting themselves at their border, itâs going to catch up to them. Reversal of tariffs policies or not.
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Maybe the MSCI World ex USA countries and Latin America can now finally get their shit together and create a combined massive free trade zone.
We cannot explain what the problem with your understanding is, because all we have are strange stories of 200% VAT rates and about VAT bankrupting companies.
The facts are very simple:
VAT is a consumption tax that is agnostic to the source of the good. It doesnât matter whether the good is produced locally, imported, or a mix of the two. It also doesnât matter how many value added steps there are, thanks to the VAT refund mechanism. The total amount of collected tax is always the same, and collected in its entirety by the end consumerâs jurisdiction.
Tariffs on the other hand are not agnostic to the source of the good. Thatâs the entire point of tariffs. A domestic producer does not need to pay tariffs, an importer does.
And this is why it is so absurd for you to claim that VAT and tariffs are the same when it comes to trade. VAT is cleverly designed to be fair and non-discriminatory to importers (the main purpose is to generate tax revenue) while tariffs are designed for the express purpose of discrimination (the main purpose is to protect some domestic producers).
As far as I can tell, youâve never acknowledged this fact, nor explained how your theory about VAT being the same as tariffs would fit in with these facts. You just keep asserting it.
I have no idea of what you mean here. The VAT is paid by the buyer, in the buyers country. No seller has an advantage. (The buyers in a lower VAT jurisdiction have an advantage, but that is totally irrelevant to your claims about how VAT is unfair on some sellers.)
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I believe what @cubanpete_the_swiss is trying to say is that if country have VAT , it reduces the effective profit a company can generate because the gross profit gets shared with the government
For example, if max a person is willing to pay for anything is 1200 EUR, then this means with 20% VAT in place, the highest net price a supplier can charge is 1000 EUR.
However if this same person was living in country with 0% VAT country, then for a 1200 Eur budget , the supplier can charge 1200 EUR and hence have a higher margin to make
All of this is true but in my view have no evidence that Tariff & VAT are effectively the same thing for a company importing the goods into foreign country.
But this discussions shows why Trump is so easily able to talk in front of media with the same explanation on why he is raising tariffs.
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But itâs way more complicated. Company tax, income tax, FX strength, inflation, salaries, saving rate, etc will all have an impact on how much someone is ready to pay for a good in country A vs country B. I donât think you can meaningfully single out VAT.
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Agreed. I was just trying to think what the line of argument was.
Normally low VAT countries also have low final prices anyways. VW costs low in US vs Germany
Apparently Trump is more focused on the yield of the 10 year treasury than the stock market in this term. Interesting to see that the yield has gone down 0.3% since last week. Since he is in charge, the yield has dropped from 4.6% to almost 4%. I can imagine heâs pretty happy. Nevertheless interesting times, finally some action in markets.
Hmmm, yes, finally some changes but not only in markets but in global world order.
What is the main goal of this tariffs? I believe is to re-industrialize the country, to have leverage for negotiations and to generate a new deal (as big as Brettom Woods) to change the world order to their advantage.
That makes sense and will work? I donât know but I understand totally the drastic mouvement.
I think that something this drastic as this was required as the US is drawn in debt, have no manufacturing, limited defense capabilityâŠ
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Or not lol.
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