Trade Tensions With Europe Flare as Trump Flexes Economic Muscle
Date: Thursday, January 23, 2020
Source: The Wall Street Journal
President says he will impose new tariffs on European car imports if EU doesn’t agree to a new trade pact
DAVOS, Switzerland—Fresh threats by the U.S. to place tariffs on some of its closest allies—just days after reaching an initial trade deal with China—show that economic pressure remains President Trump’s weapon of choice in international disputes.
Even as he lauded the phase-one deal the U.S. signed with China last week, Mr. Trump on Tuesday threatened another trade fight with Europe. Mr. Trump, in an interview on the sidelines of the World Economic Forum, said he would impose new tariffs on European car imports if the European Union didn’t agree to a new trade agreement.
Hours earlier, U.S. Treasury Secretary Steven Mnuchin warned that Italy and Britain would face U.S. levies if they proceeded with a tax on American digital giants such as Alphabet Inc.’s Google and Facebook Inc.
The double salvo shows Washington will continue efforts to bend other nations to its will by applying economic pressure on allies and adversaries alike—everything from sanctions on longtime adversary Iran to possible tariffs for longtime partners in Europe.
France agreed Monday to delay the imposition of a digital tax in the face of threats of U.S. tariffs on French exports. In an interview at Davos on Tuesday morning, Mr. Mnuchin said French President Emmanuel Macron had agreed to hold off on the tax through the end of the year while the two countries worked out a permanent resolution.
Some U.S. officials view Mr. Macron’s move as a climb-down under pressure from the administration, which had threatened a 100% tax on French wine if the digital tax wasn’t paused.
If the U.K. and Italy proceed with planned digital taxes on American companies, “they’ll find themselves faced with President Trump’s tariffs,” Mr. Mnuchin said. “We’ll be having similar conversations with them.”
In response, the U.K. said it would go ahead with its digital-services tax in April if no comprehensive, multilateral deal on how tech companies should be taxed was found. The Italian government declined to comment on whether it would proceed with a similar tax last year that was to take effect in 2020.
In Tuesday’s interview with The Wall Street Journal, Mr. Trump, who railed against the large trade deficits European countries hold with the U.S., said he would impose tariffs on some $60 billion worth of European automobiles and car parts if he couldn’t strike a trade pact with the EU.
“They know that I’m going to put tariffs on them if they don’t make a deal that’s a fair deal,” said Mr. Trump, who declined to say what deadline he was imposing. “They know what the deadline is,” he said, adding that he would reveal it publicly soon.
The EU has promised to respond to U.S. tariffs with levies on about $100 billion of trans-Atlantic trade. Talks on removing barriers to U.S.-EU trade have stumbled on several issues, notably pressure by the U.S. on Europeans to open their agricultural markets to U.S. companies.
“The administration believes that there is a fundamental imbalance in the openness of the U.S. to European imports and Europe’s openness to U.S. imports,” said Peter Chase, a former U.S. diplomat who is now a Brussels-based fellow at the German Marshall Fund. “They feel that simply trying to reason with Europe—just like simply trying to reason with China and Japan—has not worked,” he said. “So, they will look for other sources to force Europe to think about that fundamental imbalance.”
Tuesday’s threats could herald months or years of economic tensions. Indeed, even with a phase-one trade deal with China in place, Mr. Mnuchin said a second phase wouldn’t necessarily be a “big bang” that removed all tariffs. “We may do 2A and some of the tariffs come off,” he said. “We can do this sequentially along the way.”
Friction over the question of taxing U.S. tech giants is also likely to continue.
Countries working through the Organization for Economic Cooperation and Development recently arrived at a plan for apportioning taxes paid by multinational companies on activity that spans borders and isn’t easily captured by existing rules, including digital activity. The U.S. has signaled it objects to the plan.
Frustrated with progress on the OECD talks, France announced the tax last year as a way of collecting revenue from web-based companies that pay little or no tax on substantial sales in France.
The OECD is set next week to publish an update on the talks, ahead of a meeting of finance ministers from the Group of 20 leading economies Feb. 22-23 in Riyadh. The prospect for success in those talks is uncertain.
The stakes are high for Europe. Without a change to the tax rules, European governments face the prospect of a steady slide in their corporate tax revenues.
The Trump administration’s unilateral moves, including the tariffs threats, reflect the enduring skepticism with which it views multilateral solutions to pressing international problems.
In his speech, Mr. Trump touted the power of unilateral action, arguing that his bold approach to China helped resolve problems that had plagued the international trading system for years. “Before I was elected, China’s predatory practices were undermining trade for everyone,” he said. “Under my leadership, we confronted the problem head on…. China has agreed to do things they would not have done.”
China’s Vice Premier Han Zheng said Tuesday that Beijing would keep promoting multilateral cooperation, including reforms to global-governance institutions. In a speech in Davos following President Trump’s remarks, Mr. Han said “International affairs shouldn’t be dictated by any one country or a small group of countries.”