The US Trade Representative (USTR) has begun the process of targeting French cheese and fashion for trade tariffs in retaliation for Digital Sales Tax imposed by France.
While the vast majority of countries around the world feel a fair and reasonable taxation regime against technology companies would be a rational approach, the US Government has decided this is an attack on the US economy. Ironically, the US is accusing Europe of protectionism when US policies over the last few years have been the perfect example of how to define the term.
Looking at these tariffs, cheese and other diary products are the main focus of the 63-strong list, although French fashion businesses have also been targeted. Interestingly enough, sparkling wine has been included on the list, but no other types of wine.
Although such imports are daunting for the moment, this is a public consultation. Official action will take place, should the US continue down this path, over the coming months. The USTR has argued the Digital Sales Tax unfairly targets US companies.
“USTR’s decision today sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on US companies,” said Ambassador Robert Lighthizer.
“Indeed, USTR is exploring whether to open Section 301 investigations into the digital services taxes of Austria, Italy, and Turkey. The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets US companies, whether through digital services taxes or other efforts that target leading US digital services companies.”
The key difference between the policies of France and the US seem to have been completely missed by Lighthizer, and perhaps it is worth revisiting the definition of ‘protectionism’.
Protectionism (noun) the theory or practice of shielding a country’s domestic industries from foreign competition by taxing imports
France is not protecting its own domestic economy through the introduction of the Digital Sales Tax, it is attempting to make its own taxation rules fit for the digital era. These regulations were written in previous decades, where the idea of digital was only a glint in Bill Gates’ eye. These policies are designed so digital companies, all digital companies not just US ones, are not able to shift profits to tax havens to avoid paying a fair and reasonable rate back to the societies who are fuelling the monstrous growth.
On the other hand, President Trump has been actively engaging in protectionist policies against the Chinese, Canada and Mexico. This is the latest effort, though it has been suggested here that Austria, Italy, and Turkey are also in the firing line. One would suspect the UK, with its own approach to digital tax, is also being discussed behind closed doors, while the Czech Republic has also been making similar noises.
What is worth being noted is that the US internet firms will feel the greatest impact from the French Digital Sales Tax, which will only apply to companies with sales in excess of €25 million in France and €750 million globally. There are other companies which will fall into this category, Sweden’s Spotify for example, though this is not targeting the US, it just so happens US companies are the biggest proponents of creative tax strategies which bleed value out of a society, offering nothing in return.
Some sceptics might also suggest this has the right ingredients to create a new trade war. As the French Government believes it is being reasonable with its evolutionary digital tax regime, might we see retaliation for these import tariffs? This is exactly how the Chinese trade war began, though one would hope there is a more reasoned approach this time.
Ultimately this aggressive approach to international relations from the US Government will only end up as a net-loss. The world is heading towards a globalised economy, and the US is fighting back with Trump’s isolationist policies. Should these tariffs stay, good will only be more expensive for the consumer. Steel is an excellent example of this.
When Trump announced tariffs on imported washing machines, Whirlpool CEO Marc Bitzer was buoyed by the news. Six months later, the firm slashed its earnings outlook blaming tariffs placed on steel imports. Bitzer suggested steel in the US was now 60% higher than the rest of the world, impacting Whirlpool’s ability to offer cost effective goods to US consumers.
The White House might suggest that import taxes would force consumers to buy US products, but these products will be more expensive as soon supply chains and raw materials will be hit by the tariffs. You also have to take into account more stringent labour laws in the US, which will once again increase the price of goods.
Tariffs and protectionist policies do not create wealth and prosperity for the consumers of the aggressor. Trump doesn’t seem to understand the fundamentals of diplomacy, instead taking the aggressive and brash Wall Street approach to doing business to the Oval Office. The US is isolating itself and with Lighthizer promising further 301 investigations, it could be a sticky situation for the US consumer before too long.