Trump administration launches probe into French tech tax, prompting fears of new trade war

The White House announced Wednesday it was opening an investigation into whether an imminent French tax on technology giants "unfairly targets American companies," prompting some analysts to suggest a new trade war may be brewing.

France's planned digital services tax would impose a three-percent levy would on companies with annual worldwide revenues of more than $844 million and would target money earned from products sold to French customers, including online advertising. France has said the tax could generate more than $500 million and would likely affect approximately 30 companies, including Google, Amazon, Apple, and Facebook as well as some businesses based outside the United States.

U.S. Trade Representative Robert Lighthizer is handling the probe under Section 301 of the Trade Act of 1974, which gives him a year to look into the matter. The White House previously used the law to enact sweeping tariffs on China, and the statute's provisions allow Trump to impose retaliatory tariffs against France if its trade practices are deemed unfairly protectionist.

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“The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow [Thursday] unfairly targets American companies,” Lighthizer said in a statement, noting that the “services covered are ones where U.S. firms are global leaders."

Google is one of the US-based tech giants expected to face stiff fines under France's new proposal. (AP Photo/Marcio Jose Sanchez, File)

Google is one of the US-based tech giants expected to face stiff fines under France's new proposal. (AP Photo/Marcio Jose Sanchez, File)

President Trump “has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce," Lighthizer added.

Jordan Haas, the director of trade policy for the Internet Association, told The New York Times that the "prompt" action by the U.S. was appropriate.

“Today’s move by U.S.T.R. [Lighthizer] is an important step in exercising American leadership to stem the tide of new discriminatory taxes across Europe,” Haas said in an interview.

Meanwhile, the Times' economic reporter, Alan Rappeport, gave a more sobering asssessment on Twitter: "Trump preps for a trade war with France."

The probe has bipartisan support in Congress. Sen. Chuck Grassley, R-Iowa, who chairs the Finance Committee, joined ranking member Sen. Ron Wyden, D-Ore., to slam France's proposal.

“The digital services tax that France and other European countries are pursuing is clearly protectionist and unfairly targets American companies in a way that will cost U.S. jobs and harm American workers,” Grassley and Wyden said in a joint statement.

They continued: “We have urged the administration to consider all available tools to address this discriminatory action and applaud the U.S. trade representative for launching an investigation."

France is seeking to unilaterally impose the tax after negotiations to impose a similar measure across the European Union broke down. However, more European countries are expected to follow France's lead.

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Possibly anticipating that development, Lighthizer's statement also offered something of an olive branch to European countries.

"The United States will continue its efforts with other countries ... to reach a multilateral agreement to address the challenges to the international tax system posed by an increasingly digitized global economy," he wrote.