Abu Dhabi, UAETuesday 31 March 2020

Macron and Trump may have tariff truce in 2020 digital tax fight

US President is heading to Davos, Switzerland, for World Economic Forum

President Donald Trump gestures as he leaves the White House, Monday, January 20, 2020, in Washington to attend the annual economic forum in Davos, Switzerland. AP Photo/Manuel Balce Ceneta
President Donald Trump gestures as he leaves the White House, Monday, January 20, 2020, in Washington to attend the annual economic forum in Davos, Switzerland. AP Photo/Manuel Balce Ceneta

France's President Emmanuel Macron and US leader Donald Trump agreed to a truce in their dispute over digital taxes, a French diplomat said.

The agreement will mean neither France nor the US will impose punitive tariffs this year.

“Great discussion with Donald Trump on digital tax,” Mr Macron said on Monday in a tweet. “We will work together on a good agreement to avoid tariff escalation.”

Mr Trump on Twitter responded with “excellent” to the post, without providing any more details. He is on his way to Davos, Switzerland, for the World Economic Forum.

A White House readout of the call said only that the “two leaders agreed it is important to complete successful negotiations on the digital services tax” and “discussed other bilateral issues".

And neither a White House spokesman nor officials with the US Trade Representative’s office would confirm that Mr Trump had called off the tariffs.

But a respite could defuse transatlantic tension that had been building between Washington and Brussels about another possible trade war.

Last week, Mr Trump signed a ceasefire with China in phase one of a broader deal aimed at balancing trade between the world’s two largest economies.

The EU is an even bigger US trading partner than China and supply chains between the two economies, particularly in motor and financial services industries, would make a retaliatory tariff dispute even more harmful to the world economy.

France and the US will continue to negotiate along with their European partners until the end of 2020 to agree on a global framework that ensures tech companies pay an appropriate amount of tax, the French diplomat said.

Mr Macron’s government still hopes to find a solution that fits within discussions at the Organisation for Economic Co-operation and Development’s work on the issue.

European finance ministers meeting in Brussels on Tuesday will discuss progress of the organisation's talks.

The organisation is still working on its proposal for taxing tech companies around the world but France pushed ahead with its own levy last year, which hit US internet giants including Google, Apple and Amazon.

The US objected, claiming on December 2 that the French tax discriminates against American technology companies, citing a 1974 American law that Mr Trump has so far reserved to justify tariffs against China.

That opened the door to the US’s threat to hit $2.4 billion of French goods with tariffs in retaliation.

Among the French products targeted with duties of as much as 100 per cent were luxury items such wine, cheese and makeup.

One US wine merchant called it the biggest threat to the industry since Prohibition a century ago.

For its part, the French government had warned that the EU would retaliate if the US imposed additional tariffs.

The dispute was another headache for European trade officials and coincided with a change in leadership at the European Commission, the EU’s executive arm.

EU trade commissioner Phil Hogan visited Washington last week for the first time in the job, partly to plead for talks rather than tariffs in disagreements like the French digital tax.

Mr Hogan said that at stake was transatlantic trade in goods and services valued at more than $3bn a day.

“Sounds like a fairly healthy relationship to me,” he said Thursday in Washington.

“So why put tariffs on these EU products to make them more expensive for your people?”

The truce follows weeks of discussions between Treasury Secretary Steven Mnuchin and French Finance Minister Bruno Le Maire, who were scheduled to meet Wednesday in Davos, Switzerland.

US and EU trade relations started to sour in 2018 when the Trump administration invoked national-security considerations to impose tariffs on steel and aluminium from Europe.

As a US military ally, the EU was infuriated and promptly retaliated with levies on American brands such as Harley-Davidson motorcycles and Levi's jeans.

A subsequent US threat to wreak significantly more damage by targeting the European motor industry with duties led to a hastily agreed truce and a pledge by both sides to work towards reducing industrial tariffs across the board.

Since then, the Trump administration has refused to start the tariff talks unless Europe included agriculture.

It also imposed levies on EU products in retaliation over government aid to Airbus that was deemed illegal by the World Trade Organisation, and disabled the WTO’s appellate body,

The EU, meanwhile, is pressing ahead with a plan for tariffs against the US in a parallel WTO case over unlawful subsidies to Boeing.

Mr Trump, scheduled to speak on Tuesday in Davos at the World Economic Forum’s annual meeting, on Sunday repeated his frustration with Europe as a trading partner.

“Europe has had tremendous barriers to us doing business with them,” he told a conference of farmers in Austin, Texas.

"All those barriers are coming down. They have to come down. If they don’t come down, we’re going to have to do things that are very bad for them.”

“Europe was, in many ways, more difficult – and is more difficult – than China.”

Updated: January 21, 2020 06:02 AM

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