More stories

  • in

    What to Know About VAT, the Tax System Used in Europe That Trump Despises

    The president says the VAT system used across Europe gives other countries unfair trade advantages. Here’s how the system started.President Trump on Thursday ordered his advisers to determine new tariff rates on America’s trading partners, a move that he said would “correct longstanding imbalances in international trade.”As part of his plan, Mr. Trump has taken aim at the value-added tax, a system used widely in Europe and elsewhere to tax the consumption of goods and services. The president and his team describe the tax as giving other countries an unfair trade advantage over the United States.Here’s what to know.What is a value-added tax?It’s a consumption tax that adds tax on a good or service at each stage of production. The final VAT is the sum of the tax paid at each stage. This system is unlike a sales tax in the United States, which is imposed by states on the final sale of the good.In Europe, VAT rates vary by country, but on average are about 20 percent — far higher than state sales taxes in the United States, which averaged 6.6 percent in 2023, according to the Tax Foundation.Value-added taxes are assessed at each stage of production for a good or service. The cost is borne by the final consumer, not by the business. If the goods are exported, much of the value-added taxes are given back to the exporter. That provides an incentive for businesses to export goods instead of selling in their home market.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

  • in

    How Tariffs Work

    A pillar of President Trump’s policies has been tariffs, which are taxes on products imported from other countries. He has imposed or threatened to impose them as a way to influence global supply chains, raise revenue and extract concessions from other countries. But what can often be lost amid proclamations targeting other countries is who […] More

  • in

    Retail sales slumped 0.9% in January, down much more than expected

    Retail sales slipped 0.9% for the month from an upwardly revised 0.7% gain in December, worse than the Dow Jones estimate for a 0.2% decline.
    Excluding autos, prices fell 0.4%, also well off the consensus forecast for a 0.3% increase, while the “control” sales group slid 0.8%.
    Import prices accelerated 0.3% in January, in line with expectations for the largest one-month move since April 2024.

    Consumers sharply curtailed their spending in January, indicating a potential weakening in economic growth ahead, according to a Commerce Department report Friday.
    Retail sales slipped 0.9% for the month from an upwardly revised 0.7% gain in December, even worse than the Dow Jones estimate for a 0.2% decline. The sales totals are adjusted for seasonality but not inflation for a month, in which prices rose 0.5%.

    Excluding autos, prices fell 0.4%, also well off the consensus forecast for a 0.3% increase. A “control” measure that strips out several nonessential categories and figures directly into calculations for gross domestic product fell 0.8% after an upwardly revised increase of 0.8%.
    With consumer spending making up about two-thirds of all economic activity in the U.S., the sales numbers indicate a potential weakening in growth for the first quarter.
    Receipts at sporting goods, music and book stores tumbled 4.6% on the month, while online outlets reported a 1.9% decline and motor vehicles and parts spending dropped 2.8%. Gas stations along with food and drinking establishments both reported 0.9% increases.
    Stock market futures held in slightly negative territory following the release, while Treasury yields lost ground. Traders raised bets that the Federal Reserve could cut interest rates again as soon as June.
    “The drop was dramatic, but several mitigating factors show there’s no cause for alarm. Some of it can be chalked up to bad weather, and some to auto sales tanking in January after an unusual surge in December due to fat dealer incentives,” said Robert Frick, corporate economist with Navy Federal Credit Union. “Especially considering December was revised up strongly, the rolling average of consumer spending remains solid,” Frick added.

    Inflation remains ahead of the Fed’s 2% goal. The consumer price index posted a 0.5% gain in January and showed a 3% annual inflation rate. However, the producer price index, a proxy for wholesale prices, showed some softening in key pipeline inputs.
    In other economic news Friday, the Bureau of Labor Statistics reported that import prices accelerated 0.3% in January, in line with expectations for the largest one-month move since April 2024. On a year-over-year basis, import prices increased 1.9%.
    Fuel prices increased 3.2% on the month, also the biggest gain since April 2024. Food, feeds and beverage costs rose 0.2% following a 3% surge in December.
    Export prices also increased, rising 1.3%. More

  • in

    Trump Pushes Tariff Threats on Global Scale

    With less than a month in office, the president has pursued trade actions that could shatter the global trading system and dwarf the trade measures he took over his entire first term.President Trump is pursuing a far more aggressive trade policy than he embraced in his first term, allowing his unfettered instincts about how to put America at the forefront to guide him with little pretense of investigations or extended deliberations.Since taking office, Mr. Trump has threatened punishing tariffs on goods from every global trading partner. That includes proposals to tax more than $1.3 trillion of imports from Canada, Mexico and China — many times the volume of trade his tariffs affected in his entire first term.On Thursday, Mr. Trump proposed his most aggressive and consequential measure to date with a global rework of tariffs — a move that made it clear that the president would have no qualms about weaponizing tariffs and antagonizing trading partners to extract concessions.Mr. Trump ordered his advisers to devise new tariff rates for other countries globally, based on the tariffs they charge the United States, as well as other practices, including other taxes they charge on U.S. goods and subsidies they provide to support their industries.The president’s decision to embrace what he calls “reciprocal tariffs” could shatter the commitments the United States has made internationally through the World Trade Organization. That would end decades in which the United States has generally abided by the commitments it made internationally and would potentially usher in a new era of corporate uncertainty and global trade wars.Some of Mr. Trump’s threats could amount to negotiating tactics and fail to materialize. He sees tariffs as a powerful persuasive tool, which he is readily deploying to try to force other countries to make concessions on migration, drug enforcement and even their territory. But he and his base of supporters also view them as a crucial policy in their own right, a way to reverse decades of factories leaving the United States and to create jobs and shrink trade deficits.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

  • in

    Whiskey Offers Window Into the Pain of a Trade War

    Liquor is leverage as the world careens toward another trade dispute. European tariffs on American whiskey snap back after March 31 unless an extension is granted.Liquor lobbyists gathered in a ritzy private club on a recent rainy evening in Brussels to swill cocktails with names like “Toasts Not Tariffs” and fret over the potential disaster confronting their industry. Again.Seven years ago, the spirits industry found itself a casualty in a worldwide trade war as President Trump unleashed tariffs on America’s partners. The European Union retaliated with a spate of tariffs that included a 25 percent charge on American whiskey — aiming to deliver a blow to Senator Mitch McConnell, Republican of Kentucky and the then majority leader. A series of tit-for-tat tariffs followed, hitting spirits from rum to cognac on both sides of the Atlantic.The levies were suspended during the Biden administration, but with Mr. Trump back in office and trying to rewrite the rules of global trade once again, alcohol is back in the crossfire.The European Union suspended the tariffs in question in 2021 and extended that decision in 2023, but the hiatus lasts only until March 31. After that, ramped-up tariffs of 50 percent will automatically apply to American whiskey, and charges will hit a range of other goods, including motorcycles.But it is the spirits industry that has been the most vocal about the risks the levies pose. Industry leaders and craft distillers say the taxes would decimate their export business, especially in growth markets like Germany and France, while risking retaliatory tariffs that would hit other kinds of alcohol.Bars have been importing extra bottles to try to get ahead of a trade war, distilleries have been putting overseas expansion plans on ice, and industry leaders have been flocking to Brussels, Washington and Rome, where Prime Minister Giorgia Meloni has become Mr. Trump’s bridge to Europe, to try to convince policymakers to help them avoid the looming pain of tariffs.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

  • in

    Where China’s Exports Begin: Inside the Vast Markets of Guangzhou

    Rows of white concrete buildings near the Pearl River in southern China house one of the world’s fastest-growing industries: Gritty workshops are churning out inexpensive clothing that is exported straight to homes and small businesses around the world. No tariffs are paid, and no customs inspections are conducted.The laborers who make these goods earn as little as $5 an hour, including overtime, for workdays that can last 10 hours or more. They pay $130 a month to sleep on bunk beds in tiny rooms above factories packed with sewing machines and mounds of cloth.“It’s hard work,” said Wu Hua, who sews pants, seven days a week, at a factory in Guangzhou, a vast metropolis that straddles the Pearl River.E-commerce giants have forged close links from international markets to workers like Mr. Wu, shaking retailing and economies around the globe.The number of duty-free shipments to the United States has risen more than tenfold since 2016, to four million parcels per day last year. Similar shipments to the European Union have climbed even faster, reaching 12 million parcels a day last year. Duty-free shipments to developing countries like Thailand and South Africa have also surged.Now a global backlash is underway. President Trump ordered a halt on Feb. 4 to the duty-free entry, without inspection, of parcels with goods worth up to $800. Mr. Trump temporarily suspended his order to give officials time to devise a plan for dealing with the mounds of parcels that immediately started piling up at airports for inspection.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

  • in

    Trump Announces ‘Reciprocal’ Tariffs Across the Globe

    President Trump on Thursday set in motion a plan for new tariffs on other countries globally, an ambitious move that could shatter the rules of global trading and is likely to set off furious negotiations.The president directed his advisers to come up with new tariff levels that take into account a range of trade barriers and other economic approaches adopted by America’s trading partners. That includes not only the tariffs that other countries charge the United States, but also the taxes they charge on foreign products, the subsidies they give their industries, their exchange rates, and other behaviors the president deems unfair.The president has said the step was necessary to even out America’s “unfair” relationships and stop other countries from taking advantage of the United States on trade. But he made clear that his ultimate goal was to force companies to bring their manufacturing back to the United States.“If you build your product in the United States, there are no tariffs,” he said during remarks in the Oval Office.Howard Lutnick, the president’s nominee for commerce secretary, said the measures could be ready as soon as April 2. He will oversee the plan along with Jamieson Greer, Mr. Trump’s pick for trade representative, if they both are confirmed to those posts, and other advisers.The decision to rework the tariffs that America charges on imported goods would represent a dramatic overhaul of the global trading system. For decades, the United States has set its tariff levels through negotiations at international trade bodies like the World Trade Organization.Import Taxes Around the WorldThe average tariff rate the United States charges for imports is relatively low compared with that of most other countries. In general, wealthier countries tend to levy lower tariffs than poorer ones. More

  • in

    Defense stocks drop after Trump says Pentagon spending could be halved

    Defense stocks dropped sharply Thursday afternoon after President Donald Trump suggested the U.S. could massively cut defense spending.
    Trump has sent mixed messages on military spending throughout his 2024 campaign and in the early days of his presidency.

    U.S. President Donald Trump sits in the Oval Office of the White House in Washington on Feb. 13, 2025.
    Kevin Lamarque | Reuters

    Defense stocks dropped sharply Thursday afternoon after President Donald Trump suggested the U.S. could massively cut defense spending.
    Trump said Thursday at the White House the U.S. could cut defense spending in half at some point in the future. The comments came in the context of Trump discussing a potential conference on defense spending with China and Russia.

    “At some point, when things settle down, I’m going to meet with China and I’m going to meet with Russia, in particular those two, and I’m going to say there’s no reason for us to be spending almost $1 trillion on the military … and I’m going to say we can spend this on other things,” Trump said.
    “When we straighten it all out, then one of the first meetings I want to have is with President Xi of China and President Putin of Russia, and I want to say let’s cut our military budget in half. And we can do that, and I think we’ll be able to do that,” he added.
    Defense stocks that had been higher earlier in the day quickly fell. Shares of Lockheed Martin dropped 1.6%, Northrop Grumman sank 3.4% and General Dynamics lost 2.1%.
    Trump has sent mixed messages on military spending throughout his 2024 campaign and in the early days of his presidency.
    On one hand, Trump has enlisted Elon Musk and the so-called Department of Government Efficiency to find places to cut costs throughout the government. Trump has also pushed for a quick resolution of the war in Ukraine, which has involved the purchase of a lot of American weapons.

    On the other hand, he has touted the importance of having a strong military and signed an executive order to explore building an “Iron Dome of America” missile defense system. Trump also said Thursday that the U.S. has the “greatest military equipment in the world.”
    “Right now, people are confused by a number of different crosscurrents” on defense spending, TD Cowen policy analyst Roman Schweizer told CNBC last week.

    Don’t miss these insights from CNBC PRO More