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How Trump could use tariffs to fight French digital services tax

President Donald Trump

Joshua Roberts | Reuters

President Donald Trump might battle again in opposition to France’s new tax on U.S. expertise firms by unleashing biting tariffs on key French items, in line with commerce specialists.

The French Senate on Thursday handed a 3% tax that can have an effect on American companies comparable to Fb and Google. The tax, already accredited by France’s Nationwide Meeting, would apply to firms that draw about $850 million in income worldwide from digital providers — and about $28 million from inside France.

Forward of the tax’s passage, the Workplace of the U.S. Commerce Consultant began an investigation into whether or not the measure “is discriminatory or unreasonable and burdens or restricts United States commerce,” U.S. Commerce Consultant Robert Lighthizer mentioned Wednesday. As soon as it finishes the probe, the company might retaliate with tariffs or different steps to discourage France — and probably different nations — from placing new taxes on high U.S. firms.

“Once the investigation is complete, USTR will determine based on the findings of the investigation whether and what action should be taken,” the USTR mentioned in a press release Thursday when requested how the administration might hit again at France.

French wine drinkers beware

The Trump administration will almost certainly reply by slapping tariffs on iconic French items, specialists mentioned. That might imply duties of as much as 100% on signature French merchandise. Suppose wine, cheese or fragrance.

“I would expect steep tariffs on a very symbolic product, which is obviously the French spirits and wine industry. … That’s symbolic and it does hurt economically, as well,” mentioned Jorn Fleck, affiliate director of the Future Europe Initiative on the Atlantic Council.

In a CNBC interview final month, Trump recommended he might put tariffs on French wine. He mentioned California wine producers have complained to him about France placing increased tariffs on imports than the U.S. does.

“And you know what, it’s not fair. We’ll do something about it,” he mentioned.

France exported €3.2 billion (about $3.6 billion) in wine to the U.S. final yr, making America its greatest export market, in line with the Federation of French Wines and Spirits Exporters.

Trump’s different choices to retaliate in opposition to France

The investigation below Part 301 of the Commerce Act of 1974 provides Trump choices to hit French industries past wine. As an illustration, he might put smaller tariffs of as much as 5% on all French imports. However the transfer is unlikely, in line with Gary Hufbauer, a nonresident senior fellow on the Peterson Institute for Worldwide Economics.

The Trump administration has one other various that specialists think about extra drastic. The White Home might use Part 891 of the Inner Income Code to double taxes on French firms doing enterprise within the U.S.

When France was mulling the digital tax final month, Sens. Chuck Grassley and Ron Wyden – the highest Republican and Democrat on the Senate Finance Committee, respectively – urged Treasury Secretary Steven Mnuchin to contemplate elevating taxes on French subsidiaries. However specialists consider the White Home will desire focused tariffs to elevated taxation.

“That would be pretty draconian and I think would not be proportional” to France’s digital tax, Hufbauer mentioned.

Because the U.S. investigates its choices to retaliate, it can additionally work to strike a multilateral settlement on digital taxation with Group for Financial Cooperation and Growth, or OECD, nations. However a decision just isn’t anticipated till subsequent yr.

The sluggish, multilateral OECD course of is a tricky promote for Trump, a showman who likes to make blunt political factors. He could desire a transfer he can tout as a concrete instance of cracking down on the EU, particularly as he runs for reelection in 2020.

“The president can use this for his political advantage,” Fleck mentioned. “You’ve heard him talk about the EU being almost worse than China in terms of some of its trade practices.”

It stays to be seen whether or not Trump needs to open one other entrance in his world commerce battle throughout an election season. He’s already scrambling to achieve a cope with China because the world’s two largest economies attempt to keep away from a widening commerce battle.

In May, his administration delayed tariffs on EU vehicles and auto half imports by as much as six months.

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