The French government has just imposed a 3% digital tax on American tech companies. Is France heading into a trade war with Donald Trump?
In spite of repeated warnings from the Trump Administration, the French government recently decided to go ahead with a short-sighted attempt to raise much-needed tax revenues.
While it is true that the French economy certainly needs an infusion of cash, and badly, this attempt to do so on the backs of American tech companies may soon backfire.
That the dire financial strait created by slow-growth and crippling environmental taxes is such that France is it is willing to risk provoking President Trump and starting a trade war, proves how desperate the French government has become to placate yellow vest protestors.
The French National Assembly passed a 3% digital services tax (DST) targeted at American tech companies on the 4th of July — American Independence Day. The final version of the DST was approved by the French Senate to much celebration on July 11th, which is Bastille Day in France.
Neither of these dates are a coincidence and that they were chosen seems to indicate a thumbing of the nose at President Trump’s administration and particularly at Trump’s self-styled reputation as the “Tariff Man.”
The DST targets American tech companies and will raise an estimated $563 million for the French government.
At the same time, U.S. Treasury Secretary Steve Mnuchin and French Finance Ambassador Bruno Le Marie met at the G-7 meeting in Japan about an OECD worldwide framework on a digital tax that could go into effect as soon as 2020. Le Marie says the meeting was lollipops and sunshine while Mnuchin reported that the DST that France imposed is especially heinous because it targets U.S. tech companies and is retroactive to January 1, 2019.
This diplomatic disconnect prompted President Trump to raise the subject of the DST in a call with French President Macron on Friday. The Trump Administration has ordered USTR Ambassador Lighthizer to conduct a 301-tariff investigation into whether the DST harms American companies, with the threat of tariffs looming from an Administration that hasn’t exactly been bashful about utilizing tariffs to prove a point.
Taxing American tech companies is unlikely to work in the long-term and will have negative consequences for the French. What country in their right mind wants to intentionally start a trade war with President Trump?
Instead the French should invest in tech companies, and other low carbon emission companies and industries.
If the French goal is lower carbon emissions and grow the French economy, France needs to be attracted tech companies; not frightening them away with punitive tax rates.
France should aggressively try to attract and host more American tech start-up companies at French universities, the way Israel does. France already does some of this, but needs to expand.
Paris should try to attract a Google headquarters; I hear they are looking for a friendly place to put one.
The French can call this shift in policy “Le Lancement”, which means “the start”; or “Rebondir”, which means “start up” or “bounce back”.
The French government should have no trouble selling this to the liberal electorate: Tech is low emissions, low environmental impact, and tech leadership is almost overwhelmingly liberal.
Considering that the American economy is reaching full employment, this is a perfect time for more cooperation between the U.S. and France, not less. France should drop their punitive digital services tax and work with the OECD on a framework for a modern worldwide digital tax system.
(contributing writer, Brooke Bell)