For example, lets say the cost, including corporate income taxes and VAT taxes, to build a new car is $10,000 in the US and $10,000 in Germany (including $2k in VAT tax in Germany and $2k in income/other taxes in the US). In theory, there is no advantage, so US should focus on certain cars and Germany on others and can free trade at all. With the current VAT system though, Germany can export their car to the US for only $8,000 cost (because they get the $2k in VAT refunded) while the US car in Germany cost $12,000 ($2k in VAT added). This puts US car manufacturers at a significant disadvantage when it comes to imports/exports.
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