Trump's threat of targeting VAT systems raises further concerns for S. Korea

In a recent post on his social media platform U.S. President Donald Trump sought to DEFEND his reciprocal tariff proposal and DISPUTE the so-called value-added taxes claiming that America has been mistreated by its friends and foes alike.

Lee Soo-jin covers his latest remarks.

U.S. President Donald Trump's plans to impose new tariffs on countries that utilize value-added tax systems have added another layer of uncertainty to South Korea's export competitiveness.

Trump said Saturday that Washington will treat countries with a value-added tax system, the same as those with tariffs in order to help calculate reciprocal duties on other countries.

The comment raises concerns for South Korea, which, unlike the U.S., collects value-added tax.

Typically, companies in countries with a VAT system, including South Korea, receive a VAT refund when exporting to the U.S. and only have to pay a relatively low sales tax.

However, U.S. companies exporting to foreign countries have to pay a high VAT rate that they do not pay in the U.S.

And for that reason, Trump has criticized VAT as being an unfair trade barrier for the U.S.

"They do have something that is somewhat similar which is the sales tax effectively the U.S. sales tax can be considered something that is very similar at least the results."

And since South Korea's VAT rate is 10 percent, higher than the average U.S. sales tax of 6.6 percent as of 2023, it's fueling speculation that Trump will impose a 10-percent reciprocal tariff on all South Korean imports in April.

Amid concerns over Trump's trade policies, Deputy Minister for Trade Park Jong-won left for the United States on Monday.

During the 5-day visit, Park will meet with high-ranking officials from the U.S. Department of Commerce and the Office of the U.S. Trade Representative to discuss trade and other pending issues.

This will be the first official visit to Washington by a high-ranking trade official since President Trump took office.

Park is expected to hear the specifics of the trade policies under the Trump administration, and convey Seoul's position on the matter.

These discussions are particularly important because it will be challenging for the Korean government to devise response measures, as VAT is applied based on the value added at each stage of production.

"In the end, it is the consumers which pay the value-added tax and right now except for foodstuff which is exempted, it's 10 percent so we'll have to figure out some way to eliminate the import component of that 10 percent and that could be difficult."

The same expert also added that another factor that makes this situation complex is how a large portion of the tax revenue for many nations, not just Korea, relies on VAT.

Lee Soo-jin, Arirang News.