(Bloomberg): President Donald Trump has been hunting for reasons to extract trade concessions from the European Union with the eagerness of a dog scrabbling around for a bone buried in the back yard.
First came Germany’s $24 billion car trade surplus with the US, with Trump coming close to labeling the import of cars made by BMW AG, Mercedes and Volkswagen AG as a threat to America’s national security (before he granted a reprieve). Then there was a World Trade Organization ruling on Airbus SE’s long-running subsidy fight with Boeing Co., which gave the White House enough ammunition to threaten tariffs on at least $11 billion in European goods under the cloak of fair trade.
Now US officials have found a new angle of attack: European digital taxes, specifically France’s. The French are about to impose a 3 per cent levy on sales made in the country by tech companies with more than 750 million euros ($845 million) of global revenue. The likes of Alphabet Inc.’s Google and Apple Inc. have been up in arms about what they describe as an unfair tariff on Silicon Valley.
And now they’ve been joined by their government, which is starting a probe of the French tax under Section 301 of the US Trade Act, alleging harm against American interests.
The choice of weapon is telling. Trump has used this type of inquiry against China to attack it with unilateral tariffs. This isn’t about patiently waiting for a ruling from the WTO, this is the stuff of trade wars.
While the French initiative certainly has flaws, Paris is also being singled out for political and tactical reasons. Several other countries are introducing a digital tax too, and France would happily ditch its levy in favor of an OECD solution.
What’s really motivating Trump’s team is the chance to drive a wedge between the French president Emmanuel Macron and his eurozone partners. Germany has held back from introducing a tech tax of its own, no doubt fearful of US retaliation, while Ireland - whose low corporate tax rates are a magnet for tech giants - has fought hard against the idea.
Remember too that Macron makes a virtue of opposing Trump. He was the only European leader to openly object to starting trade talks with the US, and he’s fighting to keep the Iran nuclear deal alive. The tech tax is just another way for Trump to apply counter-measures.
What happens next is a big test of whether Europe will stand by France despite the obvious divide and rule tactics from the White House. The EU’s Competition Commissioner Margrethe Vestager had spoken approvingly of national digital taxes despite fears that they might distort competition, but her term ends soon.
Europe’s leaders need to demonstrate that multilateralism still counts in an era of bilateral arm-twisting. In the longer term that means trying to maintain a global trading system (even a shrunken one) that’s based on shared values that run counter to Trump’s.
Zaki Laidi, an international relations professor at Sciences Po in Paris, has called for a “Euro-Pacific Partnership”, bringing together Canada, the EU, and the remaining countries in the Trans-Pacific Partnership. This would support the WTO (which is under siege by the Americans), comply with the Paris climate accords, and reform dispute settlement procedures rather than rip them up.
As for tech, an EU or OECD agreement on digital taxes would make more sense than messy national solutions - and would avoid Trump’s opportunistic singling out of individual victims.
Unfortunately, this is all easier said than done. The US president is showing no signs of easing his tariff barrage and the trade-dependent EU economy is stuttering, making it easier for him to apply pressure. Trump is a true test of European unity, and Europe hasn’t passed it yet.