The deficit is not as big as Trump says. And two huge chunks are easily fixable.

Tariff Delay Granted

Sunday evening Trump rolled back until July 9, a 50 percent tariff he scheduled for June 1 after a request from European Commission President Ursula von der Leyen.

It’s meaningless unless Trump changes his clueless definition of reciprocal tariff that factors in the EU’s Value Added Tax (VAT).

Part Mirage, Part Fixable

The lead chart show a goods trade deficit with the EU of $236 billion.

Not shown, however, is the BEA’s estimate of a $76 billion services surplus with the EU. Factoring in services, the trade deficit would be $160 billion.

Ireland the Biggest EU Defict

The largest US deficit with the EU is with Ireland at $86 billion. Germany is in second place at $84 billion.

All of the deficit with Ireland is due to US pharmaceutical companies taking advantage Ireland’s low tax rate. I propose the US adopt a corporate tax rate of 10 percent with 20 percent on foreign profits and this production would return to the US pronto.

Trump can accomplish the same thing, in worse way, via tariffs. Either way, unlike iPhones, this production could easily return to the US.

Poof. Bring pharmaceutical production back to the US and factor in services, and the US trade deficit with the EI would shrink to 74 billion from 236 billion.

Trump Threatens EU with a 50 Percent Tariff in June

On may 23, 2025, I commented Trump Threatens EU with a 50 Percent Tariff in June

This is now suspended until July 9, but here is the pertinent discussion.

Nontrade Barriers and the VAT

Trump claims the EU’s VAT discriminates against the US. Once again, Trump is economically illiterate.

There are other genuine non-tariff barriers, especially with China, and those are a legitimate concern.

But the bottom line is Trump’s vision of “Reciprocal Tariffs” is nonsense because it relies heavily on seriously wrong VAT theory.

Trump Complains About the EU’s VAT, What’s the Real Story?

On May 25, I discussed Trump Complains About the EU’s VAT, What’s the Real Story?

The short answer is Trump is flat out wrong about how VATs work. Please read the article for details.

The Ireland Math Revisited

Factoring in services, the US trade deficit with the EU would be $160 billion. Of that, $86 billion, 54 percent is from Ireland.

And that 54 percent is a direct result of US tax policy that encourages US investment abroad.

To fix issues hugely related to tax policy, Trump proposed a 50 Percent tariff on all of the EU because “Talks Going Nowhere“.

Well, talks with the EU are never going anywhere because the EU is not going to change its VAT policies.

But hey, we’ve got another reprieve to nowhere that supposedly ends on July 9. That may mean tomorrow or the 88th of September.

Trump Commands Apple to Make iPhones in the US

On May 23, I noted Trump Commands Apple to Make iPhones in the US or Pay 25 Percent Tariff

An increasingly erratic Trump is clueless about what it would take to move iPhones production to the US.

What Should We Do to Get Government Spending Under Control?

I addressed corporate tax policy, tariffs, and VATs in my May 25, 2025 article What Should We Do to Get Government Spending Under Control?

Please give it a look. I am open to additional ideas.

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