REVIEW - Trump's New Trade Tensions With France Causes Markets To Fall, Triggers Negotiations

BRUSSELS (Pakistan Point News / Sputnik - 04th December, 2019) US President Donald Trump's move to restore tariffs on imported Brazilian and Argentine metals was complemented on Monday by a threat to impose levies on a selection of luxury French products that caused a downward trend on European stock markets and marked a new episode in the trade clash between Paris and Washington.

On Monday, the Office of the US Trade Representative said that France's decision to impose the 3 percent digital tax a step that obviously targets US heavyweights Google, Amazon, Facebook, Apple, and microsoft occasionally referred to as GAFA or GAFAM was discriminatory. The US trade authorities suggested taxes of up to 100 percent on certain French products, including cheese, wine, handbags and lipstick.

In the wake of the US announcement, European stock markets, in general, ended in negative territory on Monday, while the next day, the German DAX index lost 1.95 percent, the French CAC40 fell by 2 percent and the FTSE in London lost 0.84 percent. Meanwhile, the Wall Street was also down.

Reaction to the US threat by Paris came swiftly. French Secretary of State Agnes Pannier-Runacher first warned that France was going to be "pugnacious" in this case, and then accused the United States of refusing to negotiate a tax agreement.

"Basically, the project we are doing is fair, and not directed against US digital platforms," she stressed.

Bruno Le Maire, the French economy minister, also raised his voice, calling Washington's tariff threats "unacceptable."

"The American threats are unacceptable. This is not the behavior expected from the United States with regard to the one of its main allies France and generally Europe," Le Maire stated, adding that France's digital tax was aimed to restore "fiscal justice," and the recent escalation was not in the interests of trade or growth.

Le Maire also noted that the existing tensions could be relieved if Washington agreed to come to the table and begin negotiations.

"If the Americans say yes, all the problems will be solved. Otherwise, they do not respect their word with the French," he concluded.

PARIS-WASHINGTON DIFFICULT RELATIONS

The current escalation represents a new episode in the row between Paris and Washington over a GAFAM tax. In July, Trump had already given cold sweats to French winegrowers, threatening to overtax France's wine imports and make "a substantial reciprocal action on the stupidity of [French President Emmanuel] Macron." The next day, Le Maire had called for calm, at the same time noting Paris' "determination" on the matter.

Tensions between Trump and Macron are not new either. The French president had thought that inviting Trump and his wife Melania to Paris in 2017 for the July 14 national celebrations, which was followed by a "tete-a-tete" dinner at a starred restaurant on the Eiffel Tower, would give him a chance to influence the decisions of his "good friend Donald."

However, the relations soured despite the good words. In November 2018, Macron made an address at the World War I centenary commemorations, implying that Europe had to defend itself against all threats wherever they come from, meaning including the United States. He also said that European countries should not be increasing their defense budgets in order to buy US arms.

Trump replied with a few indignant tweets, saying that being put on the same footing as Russia and China by an ally was "very insulting" and that the United States was not in NATO for selling arms to Europe.

It was to be expected that France's digital tax signed by Macron in late July would get a very negative reaction from the White House.

US Trade Representative Robert Lighthizer said that his country's decision to impose $2.4 billion levies on French goods indicated that the US was ready to respond to tax regimes, discriminating and damaging US companies. According to him, the US Trade Agency is set to collect public comments on the tariff list through January 14, while the public hearings are set to take place on January 7.

The US sanctions do not yet have an effective date. This gives a chance to the negotiations, which have already started at different levels and have then been advanced to the Organization for Economic Co-operation and Development (OECD) level. Their goal is to harmonize the way the US digital giants will be taxed in all the developed countries, in which they do not have a physical presence, and avoid the tax-avoidance hopping schemes. An OECD report on the outcomes of the negotiations is expected to be out in January.

The digital tax is designed to prevent tech companies that provide digital services in France, such as Facebook or Google, from dodging taxes by putting headquarters in low-tax European countries, such as the Republic of Ireland. It applies to companies that have a total annual revenue of more than 750 million Euros (about $836 million) with more than 25 million euros in France. They will be required to pay a 3 percent tax on annual sales generated in France.

The United States insists that companies cannot be targeted by taxes on their gross revenue without taking into account investments, research and development costs and other elements that come in deduction from profits. Washington also accuses Europeans of applying protectionism without admitting it.

Meanwhile, France is not alone in its tax row with the United States. Austria, the United Kingdom, Italy and Turkey are preparing legislation on the French model. Both Republicans and Democrats consider this to be discriminatory protectionism on the part of Europe.

Alain de Benoist, a French journalist and political philosopher, told Sputnik that the US sanctions policy was a form of war that was aimed at bringing about both physical and psychological effects.

"Sanctions policy is not a form of diplomacy, but a form of war. It comes when diplomacy has abdicated. Sanctions are intended to bring about both physical effects (scarcity, impoverishment, disorganization of the economy, inability to export or import) and psychological effects (raising discontent in the population of so that it puts pressure on its government). This strategy is based on the dual assumption that people are vulnerable because they depend on the outside for their supplies and outlets and are able to influence their leaders. The first postulate is correct, the second is not," the expert stressed.

De Benoist added that Washington used to impose sanctions on all disagreeable nations, and the current situation with the trade row between the United States and France was one more manifestation of such a strategy.

"The United States is the expert in sanctions: against Iran, Russia, China, North Korea, Venezuela and now Europe," he added.

However, Marc Rousset, a French economist, told Sputnik that the sanctions advocated by Trump should not be seen as punishing decisions on Europe, because it was much more a re-industrializing effort.

"From the day one, President Trump has been clear. He wants to make America great again. It means repatriating jobs to the US from all over the world and making sure all trading partners are playing fair. His first aim is China, of course, which floods America and Europe with its products," Rousset noted.

He added that the that US' possible application of taxes on French goods was a step to protect its own digital companies from an unfair policy.

"Now the United States want to defend their digital giants and consider the Europeans unfair in their taxation approach, while Europeans want tax revenue from a huge sector that pays nearly no taxes in Europe. It is a dialogue of deaf people," he pointed out.

Charles Gave, a French financial adviser and researcher, also considers the US sanctions policy as a way to give an impetus to the industrial employment in the country, stressing that Trump's key aim is "to put the American working class back to work."