Washington: The Trump administration on Friday said it would impose new tariffs on $1.3 billion worth of French goods, including cosmetics, soap and handbags, in retaliation for a French tax that largely hits American technology companies, escalating a trade dispute that threatens to further damage the global economy.
Notably absent from the tariff list, published by the U.S. Trade Representative, are French cheese, sparkling wine and cookware, which the administration had threatened to tax in December. Wine retailers and other U.S. importers of French goods had voiced opposition to those potential tariffs, saying they would hurt American companies and their workers.
The 25% tariffs will be delayed 180 days and take effect in January 2021, a hiatus meant to give both countries time to resolve their differences over a digital tax that will hit American tech companies.
France has adopted a 3% tax on the revenues some companies earn from providing goods and services to French users over the internet, even if they do not have large physical presences in France, a measure that will target Facebook, Google, Amazon and others whose businesses focus on digital advertising and e-commerce.
The Trump administration launched a trade investigation into the tax a year ago. The report found in December that the French tax “discriminates against U.S. companies, is inconsistent with prevailing principles of international tax policy and is unusually burdensome for affected U.S. companies.” The report recommended tariffs as high as 100% on certain French imports valued at $2.4 billion, including cheese, wine and handbags. The final recommendation was significantly less punitive, with tariffs at 25%, and wine and cheese were dropped from the list entirely.
U.S. and French officials called a temporary truce on the issue in January, with the French pledging to suspend collection of the tax and the Americans pledging to hold off on tariffs while international negotiators sought a multilateral agreement on where and how to tax internet commerce that crosses borders.
But that dEtente has collapsed in recent months, with Treasury Secretary Steven Mnuchin suspending international tax negotiations and warning of retaliation against any country that imposes new taxes on American technology companies.
While the United States initially agreed to work with global counterparts to come up with a unified tax system, other countries have balked at the Trump administration’s push for a provision that would effectively allow some American companies to choose whether to be governed by any new system created by a global agreement.
And a growing list of governments have looked to digital taxes of their own as tax revenues plunge during the pandemic recession. Several European countries, led by France, have been rolling out digital services taxes, which would fall heavily on American internet companies. Italy, Spain, Austria and Britain have all announced plans to levy digital services taxes, which impose duties on the online activity that takes place in those countries, regardless of whether the company has a physical presence.
In June, the administration launched trade investigations, similar to the one against France’s tax, against tax proposals in nine countries and the European Union.
The decision to go ahead with the tariffs on France could revive a trade war between the United States and Europe. President Donald Trump has already imposed tariffs on foreign steel and aluminum, prompting the European Union to retaliate with its own taxes on American goods. The two governments are also at odds over domestic aircraft subsidies, with the Trump administration taxing as much as $7.5 billion of European exports annually as punishment for unfair subsidies given to Airbus.