Business Insider Edition

Trump is on course for a new trade war with France

Jake Kanter , Business Insider US
 Jul 11, 2019, 07:27 PM
Photo by Sean Gallup/Getty Images
  • US President Donald Trump has ordered an investigation into French plans to tax tech firms hundreds of millions of dollars.
  • Trump is worried that France's digital services tax, which would place a 3% levy on the French revenues of firms like Amazon, unfairly targets US companies.
  • The US could retaliate against the tax, potentially sparking a new trade war with France. The French finance minister said differences should be resolved "through means other than threats."
  • Trump's move marks something of a change in tone for the president, who has spent weeks attacking America's biggest tech firms.
  • For more stories, go to Business Insider SA.

US President Donald Trump has ordered an investigation into French plans to slam big tech companies, like Amazon, Apple, Google, and Facebook, with giant new taxes.

The probe, known as a Section 301 investigation, was announced on Wednesday night by US Trade Representative Robert Lighthizer. It could culminate in retaliatory tariffs, potentially opening up a new trade war.

France's digital services tax, which was approved by the French senate on Thursday, would require tech firms with revenues of more than $845 million to pay a 3% tax on their French sales.

This could raise about €500 million, or R7.8 billion, for the French public purse every year, which French Finance Minister Bruno le Maire has said would amount to "justice."

Taxing revenue is meant to counter the complex arrangements most US tech firms have in place to avoid paying high taxes on their profits.

Lighthizer's office said it has reason to believe that France is "unfairly targeting the tax" on US companies. As a result, Trump has called for the investigation.

"The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies," said Lighthizer.

"The president has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce."

The US has the authority to "respond to a foreign country's unfair trade practices" under the trade act, Lighthizer's office said, suggesting it could decide to hit back at the French tax.

Action against Europe would not be unprecedented for the US president, who imposed a 25% tariff on European steel and 10% on aluminum imports in May last year. Trump is already fighting trade wars with China and India.

"Trump preps for a trade war with France," was the conclusion of New York Times economic policy reporter Alan Rappeport.

Le Maire said Thursday that threats for the US are not the answer. "I profoundly believe that between allies we can and should resolve our differences through means other than threats," he said, per Reuters.

"France is a sovereign country which makes sovereign decisions about its tax regime and it will continue to make sovereign decisions about its tax regime."

UK plans almost identical tax

France's digital services tax could be seen as a test case for other European countries to introduce similar tax regimes. The UK, for example, has announced an almost identical plan, which Boris Johnson, the likely next UK prime minister, has indicated his support for.

Trump's call for an investigation marks a change in tone for the president, who has spent weeks attacking America's biggest tech firms over their perceived liberal bias and potential antitrust issues. He has even threatened to sue firms like Google and Facebook.

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