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Notes -
A VAT applies equally to foreign and domestic goods. It is not similar to a tariff.
Whether applying a retaliatory tariff (harming both sides) in order to kick the first side into dropping their tariff is a quantitative question that can easily differ from one situation to the next. It is not amenable to a reductio like "any country that refuses to trade with us under condition of absolute free trade is harming us and we will retaliate".
It is similar to tariff, as VAT on foreign goods is used to subsidize domestic production. Revenue from VAT is used to subsidize domestic infrastructure, healthcare and other benefits for domestic workers and companies, or they can even provide direct subsidies. None of these are available for factories or workers from foreign manufacturers who get nothing from VAT imposed on goods they produce. So in the end domestic producers reap more advantage compared to what they pay as a tax.
Okay, so what are these quantities and what are costs or benefits to that? If retaliatory tariffs are beneficial then under what conditions? What if these conditions are met when you are the one enacting the tariff as first mover - should you do it?
It's the subsidy to domestic production that's the issue here, not the VAT for raising revenue. The VAT falls on domestic and foreign producers equally. An income tax is no different from a VAT in this respect.
The cost to the retaliating entity of the foreign tariff, and hence the benefit of getting rid of it. The cost to the retaliating entity of the retaliatory tariff. The chance of success, and how long it would take.
Under the assumptions in this discussion (that a tariff harms both sides), the conditions cannot be met enacting the tariff as a first mover.
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