Likelihood or Improbability of US-France Trade War

The adoption of the GAFA law on the taxation of digital giants in France is, first of all, a domestic political step designed to resolve the issue of additional funds needed by the French budget to meet the demands of the “yellow vests.” In accordance with the new law, the French government plans to replenish the budget at the expense of 30 companies operating in the French market. Incidentally, these aren’t limited to the four American giants (Google, Amazon, Facebook and Apple), but also include European and French companies (for example, Creto). The expected additional revenue contribution to the national budget is 400-500 million euros. Despite the fact that the “yellow vests” movement is gradually fading away and today far fewer French people take part in Saturday protest activities, the President of the Republic is expected to make good on his promises and this requires appropriate funding.

It is obvious that the leadership of France is aware of the foreign policy implications of adopting the GAFA law: the tax proposal had been discussed for a long time and the French had been informed about the negative reaction of the White House. However, France’s political leaders persisted in the development of the new tax measures targeting the international IT giants, and in the first half of July both the National Assembly and the French Senate approved the bill. French Minister of the Economy and Finance Bruno Le Maire openly told reporters that there’s a real chance that the US will impose sanctions on French business, and that there are legal mechanisms in the United States for pursuing this action. Le Maire referred to the US Trade Act of 1974, which the US recently cited in its economic confrontation with China, which ended unfavourably for Beijing. If this law is applied to France, French wine exports may be at risk (the United States may impose additional taxes) as well as the French auto industry, although experts agree that this sector is not sensitive to French exports to the United States. Other French businesses operating in the United States may suffer significantly.

However, it seems that the French demarche has a completely different foreign policy objective. First, few French believe that the United States will indeed apply real economic sanctions against its “ally” (this is the terminology used by French politicians in the media) as it only applies these to foreign political rivals or rogue states. The French see in this bill a precedent that will force European countries, as well as the EU bureaucracy in Brussels, to introduce the taxation problem to the general discussion: more precisely, the tax avoidance of big companies that are based legally and physically in other countries, and take money from Europeans. A draft of such a law has been discussed already in Brussels, but Sweden, Ireland, Denmark and Finland blocked the further development of new fiscal measures. The French side expects that, thanks to the present uproar, this issue will be raised  at the G7 heads of state summit in Biarritz in late August. The French initiative will also make inevitable a discussion within the framework of the OECD with the US participation: the White House has already confirmed its readiness to take part in a multilateral discussion within the framework of the organization.

Second, the French believe that they are not alone in Europe in the fight for fair taxation. A similar bill is already being considered in the UK, as well as in Spain, Italy, Belgium and also in Australia. It is obvious that residents of other European countries, as well as France, are losing out due to gaps in the existing legislation. However, the political prospects for the adoption of such a law in other European countries (and not only countries) are still vague. The French themselves admit that even Germany is still behaving cautiously on this issue, not wanting to provoke Washington in a way that could hurt the German car industry by imposing additional taxes on its exports.

Predicting the actions of Donald Trump is an ungrateful affair, so it is impossible to talk about the likelihood or improbability of an economic war between France and the United States at this stage. However, we can assume that the French calculation in this foreign policy game is exactly the following: to provoke discussion on the sidelines of the G7 meetings and achieve a common European position on taxing digital giants, because only a united European front can defend its economic interests in relations with its American “ally.”


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