Did The FAANGS Just Start An EU Trade War?

It's so on. That was basically President Trump's response to the French digital sales tax this morning as he threatened tariffs of up to 100% on $2.4bn worth of French goods.

After accusing President Macron of France of some ill-judged words over referring to Nato as being "brain dead," the President went on to point out that some of the "bad" things Macron has done will backfire. Namely, the digital sales tax of 3% on the tech giants will result in massive retaliatory tariff action.

It was a little hard to pick out exactly what President Trump was trying to say because he is no great orator. But it appeared to boil down to the US positioning Macron as taking action against American companies and, if anyone's going to tax them, it should be America. I kid you not -- that is effectively what Trump was trying to say as he stumbled over his words in a London press conference this morning that was televised live ahead of today's Nato summit. 

The point that this is a tax on sales made in France, not the US, failed to get a mention, nor did the fact that it applies to all tech companies, not just American ones. It would be hard to imagine Trump believing it is ok for French companies to do business in the US and pay virtually no tax, but instead use clever accounting methods to account for profit in low tax havens. 

It is hugely important to the UK because where France leads, we are about to follow. A scheduled 2% Digital Service Tax is due to be levied from April 2020. It is in the Conservative Party manifesto for next week's election and the Labour Party and Liberal Democrats also make vows to tax the tech giants more highly.

It must be said -- and I made the point in this column recently here -- that the Conservative manifesto only references the tax, not the proposed implementation date. There is plenty of wiggle room in there for the party to be committed to the levy, but delaying it while more work is done to make sure it's right.

Politicians are skilled at finding ways to kick plans into the long grass where they can can remain, like Shroedinger's cat, both alive and dead at the same time.

The thing is, if Boris wins a majority next week -- and the polls suggest he will -- he has a problem. The first port of call is Washington DC to conduct trade talks with -- for the first, time -- a set date for the UK's departure from the EU in sight.

It is hard to imagine how this could go smoothly if the UK is about to follow France and tax the tech giants, prompting the very people they will be speaking to to disappear into a separate room and decide how high they should raise tariffs by way of retaliation.

My best guess is that the long grass the Digital Services Tax will be kicked into will be the outcome of the trade talks which will start off with some vague promise to allow profits to be taxed where they are generated. Some form of words will be used to put off having to implement a policy that will incur the wrath of the very people the UK is trying to conduct trade talks with.

As for France, it is raising an inconvenient truth with President Trump this morning, which I blogged about on this site not so long ago as well. If you pick a fight with one EU member, you pick a fight with them all. The French government has been very clear that it will not only be France considering retaliatory tariff action against the US, but the whole of the EU.

So, Americans who like fine wine, smelly cheese and luxury handbags and fashion will need to brace for a trade war. As for the UK, we will have to see which way next week's vote goes. 

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