The VAT’s impact isn’t just about the end consumer price; it’s about the cumulative cost structure and how it’s applied differently to U.S. versus EU goods along the supply chain. For an EU-made product, VAT is charged at every step—raw materials, manufacturing, distribution—but businesses in that chain can reclaim the VAT they’ve paid on their inputs. This keeps the pre-VAT price (the €100 base) competitive because the tax doesn’t pile up as an unrecoverable cost. The final consumer still pays €120, but the producer’s net tax burden is offset by those refunds, stabilizing production costs within the EU.
For a U.S.-made product, the situation is different. The U.S. company pays no VAT domestically (since the U.S. uses sales tax instead), but when that $100 gadget hits the EU border, it’s treated as an import. The full 20% VAT is applied right there, often alongside customs duties (which EU goods don’t face internally). The U.S. producer can’t reclaim any VAT because they’re outside the EU system, so their costs—manufacturing, shipping, duties—get the VAT layered on top without any offsets. This often makes the pre-VAT price of the U.S. good higher than an equivalent EU good before the consumer even sees it. If the U.S. gadget’s base price swells to, say, $110 due to shipping and duties, the consumer pays $132 (with 20% VAT) instead of €120 for the EU alternative.
EU producers benefit from no import duties, lower shipping costs (since they’re closer), and VAT reclamation, all of which tend to keep their base prices lower or more competitive. U.S. goods, meanwhile, carry extra baggage—tariffs, transatlantic shipping, and no VAT relief—making them more likely to exceed that €120 benchmark. Data backs this: in 2023, the EU imposed an average tariff of 4.2% on non-EU industrial goods (on top of VAT), while intra-EU trade faced zero tariffs. That gap compounds with VAT, tilting the scales.