With just days to go before July 9, when the three-month pause on 50 per cent “reciprocal” tariffs imposed on April 2 ends, pressure has mounted for a US-European Union deal, now focused on “taxes”.
If no agreement was reached, these tariffs, reduced to 10 per cent during the pause, would snap back. Although controversial, since taxes are different to tariffs, US President Donald Trump has long treated VAT, fines and other foreign levies as grounds for retaliation.
“The United States sees digital services taxes as discriminatory, much like a tariff that hits imports but not domestic providers”, Bryan Riley, a trade economist at the National Taxpayers Union Foundation, told Brussels Signal on July 3.
“The Trump administration views value-added taxes as a problem, while most economists would say VATs have little to do with international trade,” he said.
That was confirmed by Hans Dewachter, chief economist at Belgian bank KBC, in an interview with Brussels Signal the same day.
“A value-added tax is totally unrelated to international trade,” he said. “It’s applied the same whether a good is imported or locally produced — there is no discrimination.
“VAT is a sales tax,” Dewachter added. “A tariff is something you pay because you cross a border. That’s the big difference.”
Still, Trump was now treating these tax systems as trade barriers and threatening steep tariffs unless they changed.
The latest escalation began with US opposition to the EU’s Digital Markets Act (DMA) and Digital Services Act (DSA), which the Trump administration claimed were designed to target and weaken dominant US tech firms such as Google, Meta, Apple, and Amazon.
But now the scope of Washington’s complaints has widened: Even basic fiscal tools such as VAT have been being cited as unfair to US exporters.
On July 3, EU Trade Commissioner Maroš Šefčovič was in Washington meeting US Trade Representative Jamieson Greer and Commerce Secretary Howard Lutnick in a final effort to prevent the tariffs from snapping back.
EU officials have held firm, insisting the DMA and DSA were neutral, legal and non-negotiable. The Trump administration has said the opposite and now linked any future trade deal to tax relief for US companies.
Trump’s core argument was that if a US company faced a tax, fee, or regulatory fine in Europe that a European company did not face in the US, that amounted to unfair trade practice.
That logic helped him score a recent victory in Canada. On June 27, just hours before the first payments were due under Ottawa’s digital services tax, the Canadian Government abruptly scrapped the measure.
Trump had called it “a blatant attack” and suspended trade talks until the tax was removed. US Commerce Secretary Lutnick later said Canada’s reversal “would have been a deal breaker” had it not occurred.
Now, Trump was applying the same pressure to Brussels. If no deal was reached by July 9, a 50 per cent tariff would apply to all EU exports on top of existing Trump-era duties of 10 per cent on general goods, 25 per cent on cars, and 50 per cent on steel and aluminium.
The European Commission has prepared €95 billion in retaliation, including measures already authorised in response to earlier Trump tariffs on metal.
But unity in Brussels was fragile. Germany and Italy have made clear they would accept a permanent 10 per cent baseline tariff on EU exports to the US, viewing it as manageable if it preserved access to the US market.
France initially opposed the idea, warning against an “asymmetrical” deal but has recently signalled it may soften its position.
EU officials said any compromise would depend on sectoral relief and limits on future retaliations but internal divisions have already been weakening the bloc’s negotiating hand.
Meanwhile, continuing his crusade against taxes Trump has already forced another retreat on international taxation.
At the recent G7 meeting, the US succeeded in watering down the 15 per cent global minimum corporate tax — known as Pillar 2 — by pressuring allies to exempt US multinationals from its reach.
The tax, originally agreed in 2021 and implemented in the EU and several G7 countries in 2024, had been a cornerstone of efforts to limit tax avoidance.
In the face of Trump’s threat of a retaliatory “revenge tax” on foreign firms operating in the US, though, G7 governments backed down.
