If there were a contest for weirdest Trumpism last night—well, I’m not sure I could pick a winner. But on the nerd front, this one just confused me completely:
We have to renegotiate our trade deals. And, Lester, they’re taking our jobs, they’re giving incentives, they’re doing things that, frankly, we don’t do.
Let me give you the example of Mexico. They have a VAT tax. We’re on a different system. When we sell into Mexico, there’s a tax. When they sell in — automatic, 16 percent, approximately. When they sell into us, there’s no tax. It’s a defective agreement. It’s been defective for a long time, many years, but the politicians haven’t done anything about it.
In real time I wondered what the hell this was all about, but the debate moved on and I didn’t have time to ponder it. Aside from being completely wrong, I wondered where it came from. Trump has never mentioned VATs before, has he?
Well, it turns out that yesterday an economist at UC Irvine (yay Anteaters!) co-authored a long report claiming that Trump’s full economic plan would hypercharge growth and make us all rich etc. etc. Jordan Weissmann dismantles the report here, and mentions that it takes aim at VAT taxes around the world:
Here’s how it works: When a company in Germany makes goods to sell at home, it has to pay the VAT. But if it makes them to sell in the United States, it doesn’t—the tax gets waived at the border….Meanwhile, if an American company makes widgets to sell in Germany, it does have to pay the VAT.
In short, everybody has to pay Germany’s VAT when they’re selling goods in Germany. Nobody has to pay Germany’s VAT when they’re selling goods outside of Germany….However, Navarro and Ross say border adjustability turns the VAT into an “implicit export subsidy” for foreign companies and an “implicit tariff” on U.S. exporters.
….This is just … wrong. Dead wrong. It’s true that American car companies, to take just one example, have to pay a German VAT when they sell sedans to Berlin or Düsseldorf. But you know who also has to pay that tax? BMW and Volkswagen. Border adjustability just puts everybody on equal footing. Waiving the VAT on exports does the same thing. If German companies had to pay the VAT on cars they were sending to the U.S., they’d be at a huge disadvantage compared to their American rivals, who wouldn’t face a domestic VAT. Germany would essentially be suppressing its own exports.
So that’s where it came from. Somebody at Trump HQ read the report, mentioned the VAT part to Trump, and Trump then burbled about it on stage last night. It’s all gibberish, but oddly enough, you can’t really blame Trump for this one. After all, a guy with a PhD in economics fed this stuff to him. It’s such a mind-boggling misstatement of how VATs work that I now want to know why the guy with the PhD was willing to embarrass himself with this stuff. Trump, of course, just lapped it up.
Anyway, that’s the story of the VAT. Don’t you feel smarter now?