US-Europe trade spat risks flare-up over cars, digital tax

The U.S. and Europe looked set for a renewed clash over everything from car tariffs to digital taxes in a sign that a new American focus was emerging following President Donald Trump’s trade truce with China.

Speaking at the World Economic Forum in Davos, Switzerland, on Thursday, Commerce Secretary Wilbur Ross said the U.S. was still considering slapping levies on European auto imports even as it hopes for a “peaceful resolution” of differences. Treasury Secretary Steven Mnuchin declined to say if he was still pushing for an optional digital tax after an agreement for a global framework was reached with France on Wednesday.

Earlier in the week, Trump abandoned his conciliatory approach to his transatlantic allies and lambasted Europeans for having trade barriers and said they were “more difficult to do business with than China.” Any tariffs on cars would be particularly painful for Germany, whose manufacturing is already in a slump as as result of the U.S.-China trade war.

“The threat of tariffs has led to people being willing to renegotiate trade deals,” Mnuchin told reporters. “The purpose is to get free and fair and reciprocal trade.”

On Notice

Trump put European leaders on notice this week, renewing a threat to hurt the economies of transatlantic allies if they aren’t willing to compromise on a trade deal before the U.S. elections.

“The president has not ruled out putting in tariffs if the negotiations fail,” Ross said. “We have not abandoned the tariffs, they are still available. We hope they will not be used.”

Speaking in an interview with Bloomberg on Thursday, Dutch Prime Minister Mark Rutte said that he’s discussed the issue of auto tariffs with Trump and he believes they’ll be able to work out a deal. “We are united in the European Union on trade, we always have been, it’s one of the few very successful things we are doing,” he said.

The EU and U.S. have also clashed over European efforts to tax technology companies.

Last year, France introduced a 3% levy on the digital revenue of companies that make their sales primarily in cyberspace, such as Facebook Inc. and Alphabet Inc.’s Google. The U.S. threatened tariffs as high as 100% on $2.4 billion of French goods, saying the measure discriminates against American businesses.

Trade War

The U.S. and France temporarily resolved the issue Wednesday. At a meeting with Mnuchin on the sidelines of the World Economic Forum, French Finance Minister Bruno Le Maire agreed to delay collecting the digital tax until the end of 2020. In exchange, the U.S. will refrain from imposing the punitive tariffs on French goods it had threatened as retaliation.

But the detente is no guarantee that an accord will be reached. Mnuchin on Wednesday declined to say if the U.S. was still pushing for a global digital tax to be optional, a red line for Le Maire.

“An optional tax is a contradiction in terms,” Le Maire said in an interview on BFM Business. “I know of no one who voluntarily pays a tax.”

Le Maire said France will only ultimately refrain from imposing its levy in 2020 if there is a global agreement on taxation at the Organization for Economic Cooperation and Development. Talks at the OECD, however, have been dragging on for years and involve more than 135 countries.

European Commissioner for Economic Affairs Paolo Gentiloni told Bloomberg TV in an interview that if the OECD effort fails then the European Union will push for a bloc-wide digital tax of its own. Chancellor of the Exchequer Sajid Javid said in Davos this week that the U.K. also plans to go ahead with a tax on digital services in April.

“A trade war is in no one’s interest. It’s not in the interest of the U.S., it’s not in the interest of Europe,” Le Maire said. “It reduces growth, it destroys employment and destroys economic activity.”