Transatlantic Trade Monitor: Facts You Need Now | Demystifying VAT, Duties, and Tariffs: The Trade Taxes Reshaping Global Commerce

By Noa Sussman, Director of Global Solutions, TECEX

In today’s increasingly fragmented and protectionist global economy, few areas are more misunderstood — yet more impactful — than trade taxes. Terms like VAT, duties, tariffs, and more recently, duty drawbacks, are often lumped together or misused entirely, even in strategic discussions.

But make no mistake: these taxes are no longer just regulatory details relegated to customs departments or accounting teams. They have become strategic levers, influencing sourcing decisions, pricing models, and executive-level trade policies.

This article aims to lay out the key differences between VAT, duties, and tariffs — explain where duty drawbacks fit in — and explore why these trade tools are suddenly front-of-mind for global leadership.

VAT: A Tax on Consumption, Not Production

VAT — or Value Added Tax (referred to as GST in some regions) — is perhaps the most widespread and misunderstood tax mechanism in international trade. It’s fundamentally a consumption tax, charged on goods and services at each stage of the supply chain, but designed so that only the end consumer truly bears the cost.

For businesses along the chain — whether manufacturers, distributors, or retailers — VAT paid can typically be offset by VAT collected. But for the consumer, there is no recovery. This structure ensures the government captures tax revenue from consumption, without creating cascading tax burdens through the production process.

Crucially, VAT also applies at the point of import in most VAT jurisdictions. This underscores its function: a contribution to the infrastructure and systems that enable trade. Whether you’re selling a physical good or a digital service, if it’s consumed locally, it attracts VAT — and it’s the price of doing business within that economy.

Duties: The Penalty for Sourcing Abroad

If VAT is about funding state infrastructure, duties are about protecting it — particularly the domestic industries within it.

Duties are imposed on imported goods with the intention of encouraging businesses to source locally. The rationale is straightforward: if a country can produce a good domestically, it wants that economic activity — and the jobs and tax revenue it brings — to stay within its borders.

Unlike VAT, which applies broadly, duties are product-specific and country-specific, often based on trade policy, industrial strategy, or sector vulnerability. For instance, South Africa applies duties of up to 45% on imported textiles to shield its domestic manufacturing sector. A country that lacks domestic production of a certain good may reduce or eliminate duties on those imports entirely.

Duties are not neutral or recoverable by default — they’re designed to influence behavior, and businesses that ignore them do so at their own risk.

Tariffs: Where Taxation Becomes Politics

While duties are usually rooted in economic policy, tariffs are a more explicitly political tool. They’re often imposed as part of trade disputes, retaliatory measures, or economic leverage between nations.

A recent and well-known example: the Trump-era tariffs on Chinese goods. These weren’t driven by a desire to protect a specific domestic industry per se, but rather to exert pressure on China over perceived trade imbalances and policy disagreements. The scale and scope of these tariffs — along with their unpredictability — threw many supply chains into disarray.

Tariffs can change rapidly and often without notice, making them a major source of trade volatility. While duties tend to be baked into a country’s economic framework, tariffs are more dynamic — and more dangerous if misunderstood or ignored.

A Note on Duty Drawbacks: The Buzzword with Real Impact

As tariffs and duties have become costlier and more complex, a new term has entered the mainstream business vocabulary: duty drawbacks.

Duty drawbacks refer to refunds of duties paid on imported goods under specific circumstances — typically when those goods are not consumed domestically. They generally apply in three situations:

1. Unused Merchandise — Goods are imported, never used, and then re-exported.
2. Rejected Merchandise — Items are defective or incorrect and returned to the supplier.
3. Manufacturing Drawback — Imported components are used to manufacture a product domestically, which is then exported.

For example, a company assembling bicycles in the U.S. using imported tires and frames may claim a duty drawback when the final product is exported to the EU. The government’s position is clear: if the value is ultimately realized abroad, the import penalty doesn’t need to apply.

As these programs have gained visibility, they’ve become a hot topic in executive conversations, especially among companies rethinking global footprints and margin optimization.

Trade Taxes and the C-Suite: From Line Item to Strategic Priority

Until recently, trade taxes were seen as the domain of customs departments and back-office finance teams. But that changed with the shockwaves triggered by the Trump administration’s tariff policies. Over the span of a few months, organizations that had enjoyed decades of low-friction global sourcing were suddenly exposed to double-digit cost increases, disrupted supply chains, and opaque landed costs.

The result? An awakening in the C-suite.

Executives began asking new questions:

• Where are we exposed to trade volatility?
• What are our true total costs by region or product?
• Are we missing opportunities to minimize duty through better planning or classification?

Tariffs, duties, and VAT went from being reactive cost centers to proactive areas of risk management and strategic planning. Tools like duty drawbacks, free trade agreements, and temporary import regimes are now being evaluated not just for compliance, but as levers for competitive advantage.

This marks a clear shift: trade taxes are no longer administrative. They’re strategic.

Conclusion: Why Understanding the Differences Matters

As global supply chains evolve, and as geopolitical tensions and tax regimes grow more complex, businesses need to move beyond surface-level knowledge of trade taxes.

Here’s the reality:

• VAT is about infrastructure and consumption.
• Duties are about protecting local industries.
• Tariffs are about political power and trade leverage.
• Duty drawbacks are about recovering cost when the system allows it — but only if you understand the rules.

These aren’t just terms for customs declarations. They represent intentional policies — and navigating them well is a mark of commercial and operational maturity.

In an era of shifting trade alliances, rising protectionism, and shrinking margins, leaders who understand and engage with these taxes will have a tangible edge. Those who don’t? They’ll be reacting to change instead of shaping it.

Compliments of TecEx – a member of the EACCNY