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Macron, Trump May Have Tariff Truce in 2020 Digital Tax Spat

Ania Nussbaum and William Horobin

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Presidents Emmanuel Macron and Donald Trump agreed to a truce in their dispute over digital taxes that will mean neither France nor the U.S. will impose punitive tariffs this year.

Macron said on Monday he had a “great discussion” with Trump on the issue, without giving details.

“We will work together on a good agreement to avoid tariff escalation,” he said on Twitter.

“Excellent!” Trump said in a reply to Macron’s post, without providing additional information. Trump is en route to Davos, Switzerland, for the World Economic Forum.

A White House readout of the call was notably more muted, saying only that the “two leaders agreed it is important to complete successful negotiations on the digital services tax” and “discussed other bilateral issues.” And neither a White House spokesman nor officials with the U.S. Trade Representative’s office would confirm that the U.S. president had called off his announced tariffs.

Still, the possible respite may defuse transatlantic tensions that had been building between Washington and Brussels along another potential trade war front. Last week, Trump signed a cease-fire with China in phase one of a broader deal aimed at balancing trade between the world’s two largest economies.

The European Union is an even bigger U.S. trading partner than China and supply chains between the two economies, particularly in automotive and financial services industries, are intertwined in ways that would make a tit-for-tat tariff dispute even more harmful to the world economy.

Macron’s government still hopes to find a solution that fits within discussions at the Organization for Economic Cooperation and Development’s work on the issue, according to a French official who asked not to be identified in line with government rules.

European finance ministers meeting in Brussels Tuesday will discuss progress of the OECD talks. While the OECD is still working on its proposal for taxing tech companies around the world, France pushed ahead with its own levy last year that hit U.S. internet giants like Google, Apple Inc. and Amazon.com Inc.

“We now have an agreement between the two presidents to avoid any tariff escalation and avoid any trade war,” French Finance Minister Bruno Le Maire told reporters in Brussels before the meeting. “It’s remains a difficult negotiation -- with digital tax, the devil is in the details and we need to resolve the details.”

Paris and Washington have discussed the possibility of France suspending the collection of the digital tax payments due in April as long as the U.S. refrains from imposing new tariffs, French officials said. But that wouldn’t constitute a withdrawal of the levy, they added. For its part, the French government denies its national tax is discriminatory and warned that the EU would retaliate if the U.S. imposed additional levies.

The U.S. has said that the French tax discriminates against American technology companies, citing Section 301 of a 1974 American law that Trump has thus far reserved to justify tariffs against China. That opened the door to the U.S.’s threat to hit $2.4 billion of French goods with tariffs in retaliation.

Among the French products targeted with duties of as much as 100% were luxury items like wine, cheese and makeup. One American wine merchant called it the biggest threat to the industry since Prohibition a century ago.

For its part, the French government had warned that the EU would retaliate if the U.S. imposed additional tariffs.

The dispute was another headache for European trade officials scrambling to expand their policy arsenal as the U.S. takes aim at a rules-based system for global trade that Trump argues is outdated and tilted against America. It also coincided with a change in leadership at the European Commission, the EU’s executive arm.

EU trade commissioner Phil Hogan visited Washington last week for the first time in the job, partly to plead for talks rather than tariffs in disagreements like the French digital tax. At stake, he said, was transatlantic trade in goods and services valued at more than $3 billion a day.

“Sounds like a fairly healthy relationship to me,” Hogan said Thursday in the U.S. capital. “So why put tariffs on these EU products to make them more expensive for your people?”

The truce follows weeks of discussions between Treasury Secretary Steven Mnuchin and Le Maire, who were scheduled to meet Wednesday in Davos, Switzerland, the alpine resort town where government officials and business leaders gather during the winter to discuss whatever is ailing the global economy.

The dispute has ramifications outside France as other countries try to come up with ways to generate revenue from the digital economy. Mnuchin told the Wall Street Journal that the U.K. and Italy will face American tariffs if they proceed with similar levies on foreign tech firms.

U.S. and EU trade relations started to sour in 2018 when the Trump administration invoked national-security considerations to impose tariffs on steel and aluminum from Europe. As a U.S. military ally, the EU was infuriated and promptly retaliated with levies on iconic American brands such as Harley-Davidson Inc. motorcycles and Levi Strauss & Co. jeans.

A subsequent U.S. threat to wreak significantly more economic damage by targeting the European auto industry with duties on the same security grounds led to a hastily agreed truce and a pledge by both sides to work toward reducing industrial tariffs across the board.

Since then, the Trump administration has refused to start the tariff-cutting negotiations unless Europe includes agriculture in them. Also, it imposed levies on EU products in retaliation over government aid to Airbus SE that was deemed illegal by the World Trade Organization, and disabled the WTO’s appellate body,

The EU, meanwhile, is pressing ahead with a plan for tariffs against the U.S. in a parallel WTO case over unlawful subsidies to Boeing Co.

Trump, scheduled to speak Tuesday in Davos at the World Economic Forum’s annual meeting, on Sunday reiterated his frustration with Europe as a trading partner.

“Europe has had tremendous barriers to us doing business with them. All those barriers are coming down. They have to come down,” he told a conference of farmers in Austin, Texas. “If they don’t come down, we’re going to have to do things that are very bad for them.”

He added, “Europe was, in many ways, more difficult -- and is more difficult -- than China.”

(Updates with possible French concession in the 11th paragraph)

--With assistance from Jonathan Stearns, Justin Sink and Chelsea Mes.

To contact the reporters on this story: Ania Nussbaum in Paris at anianussbaum@bloomberg.net;William Horobin in Paris at whorobin@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Brendan Murray, Wendy Benjaminson

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