How trade tariffs forced Canada and Israel to eliminate US import taxes

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The global economic order is undergoing a dramatic transformation as the United States, under President Donald Trump’s second-term “America First” agenda, enforces an aggressive tariff regime aimed at rebalancing trade deficits and protecting domestic industries.

In a significant development, two of America’s key allies—Canada and Israel—have completely eliminated tariffs on US imports, securing exemptions from the sweeping reciprocal tariffs that now apply to more than 60 nations.

This strategic concession follows Trump’s landmark April 2025 announcement, where he declared a 10% baseline tariff on all imports and country-specific reciprocal tariffs designed to match or exceed the duties foreign nations impose on American goods.

Beyond traditional tariffs, Trump has long criticised Value-Added Taxes (VAT), a consumption tax used by over 170 countries, arguing that it unfairly disadvantages US exporters. His administration has hinted at potential countermeasures, including reciprocal VAT tariffs, which could further escalate trade tensions with the European Union and other major economies. See the list of VAT countries below and rates, tell us in the comments if your country is listed and may be targeted for reciprocal tariffs in the future.

This article provides an in-depth analysis of why Canada and Israel removed their tariffs, the broader implications of Trump’s trade policies, and the ongoing debate over VAT’s role in global commerce.

Trump’s sweeping tariff policy: A return to protectionism

On April 2, 2025, President Trump unveiled a historic shift in US trade policy, imposing a universal 10% tariff on all imports while introducing customised reciprocal tariffs on nations that maintain high duties on American goods. The policy, enacted under national emergency powers, bypasses congressional approval and marks one of the most protectionist moves in modern US history.

The three-tiered tariff structure

The new system consists of three key components:

1. A 10% baseline tariff – Effective April 5, 2025, this applies to all imported goods, regardless of origin.
2. Reciprocal tariffs – Starting April 9, 2025, the US will impose duties matching or exceeding those levied by other nations. For example, China faces a 34% tariff, the EU 20%, and Vietnam 46%.
3. Auto industry tariffs – A 25% levy on foreign-made vehicles took effect on April 3, 2025, targeting major car-exporting nations like Germany, Japan, and South Korea.

Full list of countries hit with reciprocal tariffs (effective April 9, 2025)

Country	Tariffs charged to US	New US reciprocal tariff
China	67%	34%
European Union	39%	20%
Vietnam	90%	46%
Taiwan	64%	32%
Japan	46%	24%
India	52%	26%
South Korea	50%	25%
Thailand	72%	36%
Switzerland	61%	31%
Indonesia	64%	32%
Malaysia	47%	24%
Cambodia	97%	49%
United Kingdom	10%	10%
South Africa	60%	30%
Brazil	10%	10%
Bangladesh	74%	37%
Singapore	10%	10%
Israel*	33%	17% (exempt after removal)
Philippines	34%	17%
Chile	10%	10%
Australia	10%	10%

Source: Newsweek (Mesa, 2025), White House tariff memorandum (April 2025)
Note: Israel’s tariff was rescinded before implementation.

The policy aims to reduce America’s $1.2 trillion trade deficit, incentivise domestic manufacturing, and pressure trading partners into lowering their own trade barriers. However, economists warn that the measures could increase consumer prices, disrupt supply chains, and trigger retaliatory actions.

Canada’s strategic retreat: Eliminating tariffs to preserve trade access

Canada, the United States’ second-largest trading partner, initially resisted Trump’s tariff threats but ultimately removed all remaining duties on US goods to avoid economic fallout. Prime Minister Mark Carney, while critical of the policy, acknowledged that Trump’s approach would “fundamentally change the global trading system”.

Why Canada capitulated

Canada’s decision was driven by several key factors:

Avoiding auto tariffs – A 25% tariff on vehicles would have devastated Canada’s auto industry, which relies heavily on US sales.

Protecting USMCA benefits – The US-Mexico-Canada Agreement (USMCA) exempts Canada from broader tariffs, but only if it maintains favourable trade terms.

Economic dependence on the US – Nearly 76% of Canadian exports go to the US, making retaliation a risky proposition.

By eliminating tariffs, Canada ensures continued preferential access to the American market, even at the cost of domestic protectionist measures.

Israel’s proactive move: Full tariff elimination to secure exemption

Israel took a more preemptive approach, abolishing all tariffs on US products just before Trump’s announcement. Prime Minister Benjamin Netanyahu framed the decision as a step toward trade liberalisation, but the timing suggests it was a calculated move to avoid new US duties.

Key implications for Israel-US Trade

Trade deficit concerns – The US had a $7.4 billion trade deficit with Israel in 2024, an 8.6% increase from the previous year.

Minimal revenue loss – Israeli tariffs on U.S. goods amounted to just $11.3 million annually, mostly on food products.

Parliamentary approval expected – The measure is likely to pass Israel’s Knesset without significant opposition.

By removing tariffs, Israel ensures it remains a favoured trade partner, avoiding the 17% reciprocal tariff it would have otherwise faced.

Trump’s VAT crusade: A hidden trade war in the making?

Beyond conventional tariffs, Trump has long targeted Value-Added Taxes (VAT), arguing they distort global trade to America’s disadvantage.

Why VAT is controversial in US trade policy

VAT, used by over 170 countries, is a consumption tax applied at each stage of production. Unlike the US sales tax system, VAT is:

Border-adjusted – Imports are taxed, while exports are exempt, making foreign goods cheaper abroad.

Refundable for exporters – European manufacturers receive VAT refunds when selling to the US, while American firms face VAT charges when exporting to Europe.

Trump has cited Germany’s auto trade surplus (which exports eight times more cars to the US than it imports) as evidence of VAT-driven distortions.

Potential US countermeasures

The Trump administration has explored several responses, including:

1. Reciprocal VAT tariffs – Imposing additional duties to offset VAT disadvantages.
2. Corporate tax adjustments – Lowering business taxes to compensate for VAT imbalances.
3. WTO challenges – Though Trump has largely bypassed traditional trade dispute mechanisms.

If implemented, these measures could add 10-30% to the cost of EU goods, compounding existing tariffs.

Economic and geopolitical consequences

1. Short-term market disruptions

Stock markets plunge – Following Trump’s announcement, the S&P 500 fell 2.47%, and the Nasdaq dropped 3.45%.

Supply chain adjustments – Businesses are scrambling to adapt to higher import costs.

2. Long-term trade realignment

More nations may follow Canada & Israel – Countries like the UK, Australia, and Mexico could seek exemptions by lowering tariffs.

WTO challenges loom – Though Trump’s use of national emergency powers complicates legal opposition.

3. Will US manufacturing benefit?

Trump’s argument – Tariffs will re-shore jobs and reduce the trade deficit.

Critics’ response – Higher consumer prices and retaliatory tariffs could negate gains.

A protectionist future?

The decisions by Canada and Israel to eliminate tariffs highlight the sheer economic leverage of Trump’s trade policies. By securing exemptions, these nations have avoided the punitive measures now facing China, the EU, and others. Meanwhile, Trump’s VAT criticisms suggest further trade battles ahead, particularly with Europe.

As the world adjusts to this new era of economic nationalism, one thing is certain: Trump’s tariffs are redefining global commerce—whether through coercion, negotiation, or confrontation.

Here’s a comprehensive table of VAT (Value Added Tax) rates by country, as of 2024. Standard VAT rates are listed, though some countries may have reduced rates for specific goods/services.

Global VAT rates by country (2024)

Country	Standard VAT Rate	Notes
Albania	20%	Reduced rates: 6% (hotels), 10% (agriculture)
Argentina	21%	Some provinces add local taxes
Australia	10%	Called “GST” (Goods & Services Tax)
Austria	20%	Reduced: 10% (food, books), 13% (agriculture)
Bahamas	10%	VAT introduced in 2015; no income tax
Barbados	17.5%	Tourism sector may have reduced rates
Belgium	21%	Reduced: 6% (food, pharmaceuticals), 12% (restaurants)
Belize	12.5%	Tourism/services may vary
Brazil	17–25%	Complex state/federal taxes (ICMS, IPI, PIS, COFINS)
Bulgaria	20%	Flat rate since 2011
Canada	5% (GST)	+ Provincial sales taxes (PST/HST); avg. 13% combined
Chile	19%	No reduced rates
China	13%	Reduced: 9% (agriculture), 6% (services)
Colombia	19%	Reduced: 5% (staples)
Costa Rica	13%	Tourism/services may vary
Croatia	25%	Reduced: 5% (basic food), 13% (hotels)
Cyprus	19%	Reduced: 5% (tourism), 9% (restaurants)
Czech Republic	21%	Reduced: 10% (food), 15% (pharmaceuticals)
Denmark	25%	No reduced rates (highest in EU)
Dominican Republic	18%	Tourism sector exemptions
Ecuador	12%	Increased from 10% in 2023
Egypt	14%	Reduced: 5% (staples)
Estonia	20%	Reduced: 9% (books, hotels)
Finland	24%	Reduced: 10% (food), 14% (restaurants)
France	20%	Reduced: 5.5% (food), 10% (tourism)
Germany	19%	Reduced: 7% (food, books)
Greece	24%	Reduced: 6% (pharmaceuticals), 13% (tourism)
Grenada	15%	Tourism/services may vary
Hungary	27%	Highest in EU
Iceland	24%	Reduced: 11% (hotels)
India	18% (GST)	Complex multi-tier system (5%, 12%, 18%, 28%)
Ireland	23%	Reduced: 9% (tourism), 13.5% (agriculture)
Israel	17%	Increased from 16% in 2023
Italy	22%	Reduced: 4% (food), 10% (tourism)
Jamaica	15%	GCT (General Consumption Tax)
Japan	10%	Increased from 8% in 2019
Latvia	21%	Reduced: 5% (books), 12% (hotels)
Lithuania	21%	Reduced: 5% (books), 9% (restaurants)
Luxembourg	17%	Lowest in EU; reduced: 3% (food), 8% (tourism)
Malta	18%	Reduced: 5% (pharmaceuticals), 7% (tourism)
Mexico	16%	Reduced in border regions
Netherlands	21%	Reduced: 9% (food, books)
New Zealand	15%	GST (no reduced rates)
Norway	25%	Reduced: 12% (food), 15% (tourism)
Poland	23%	Reduced: 5% (food), 8% (tourism)
Portugal	23%	Reduced: 6% (food), 13% (tourism)
Romania	19%	Reduced: 5% (books), 9% (hotels)
Russia	20%	Reduced: 10% (food)
St. Lucia	12.5%	Tourism exemptions
Saudi Arabia	15%	Introduced in 2018 (previously 0%)
Singapore	9%	GST will rise to 9% in 2024 (from 8%)
Slovakia	20%	Reduced: 10% (food)
Slovenia	22%	Reduced: 9.5% (tourism)
South Africa	15%	No reduced rates
South Korea	10%	VAT covers most goods/services
Spain	21%	Reduced: 4% (food), 10% (tourism)
Sweden	25%	Reduced: 6% (books), 12% (tourism)
Switzerland	7.7%	Lowest in Europe; reduced: 2.5% (hotels), 3.7% (food)
Trinidad & Tobago	12.5%	No VAT on some exports
Turkey	20%	Reduced: 1% (staples), 8% (tourism)
United Arab Emirates	5%	Introduced in 2018 (exemptions for education/healthcare)
United Kingdom	20%	Reduced: 5% (energy), 0% (essential goods)
United States	0%	No federal VAT; sales tax varies by state (avg. 6–10%)
Uruguay	22%	Reduced: 10% (food)

---

Key observations:

1. EU dominance: Most EU nations have VAT rates ≥20%, with Hungary (27%) the highest.
2. Caribbean variations: Rates range from 10% (Bahamas) to 17.5% (Barbados).
3. No VAT: The US remains the only OECD country without a federal VAT.
4. Recent changes: Saudi Arabia (0% → 15% in 2018), Japan (8% → 10% in 2019).

Sources:

1. Malone, K. G. (2025, April 2). Trump’s tariffs will fundamentally change global trading system: Carney. The Canadian Press. https://www.thestar.com/news/canada/trumps-tariffs-will-fundamentally-change-global-trading-system-carney/article_1183f5a4-4648-55c1-9c64-7e4e752ae643.html
2. Bigg, M. M. (2025, April 2). On eve of Trump’s tariffs announcement, Israel says it will lift all duties on U.S. imports. The New York Times. https://www.nytimes.com/2025/04/02/us/politics/israel-tariffs-us-imports-trump.html
3. Mesa, J. (2025, April 2). Trump tariff chart: Full list of countries hit with ‘reciprocal’ tariffs. Newsweek. https://www.newsweek.com/trump-reciprocal-tariff-chart-2054514
4. Blenkinsop, P. (2025, February 21). Why Trump has thrown VAT into the trade stand-off. Reuters. https://www.reuters.com/world/us/why-trump-has-thrown-vat-into-trade-stand-off-2025-02-21
5. Fact Sheet: President Donald J. Trump Declares National Emergency to Increase our Competitive Edge, Protect our Sovereignty, and Strengthen our National and Economic Security (The White House, April 2, 2025) https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-declares-national-emergency-to-increase-our-competitive-edge-protect-our-sovereignty-and-strengthen-our-national-and-economic-security/

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