Will the US and Europe Remain Strategic Allies?
American multinational IT corporations may offer a wide array of online services, but for all of the wealth their otherworldly understanding of consumer spending habits has brought them, they pay a pittance in income tax. At a time when states are desperately seek ways to limit their respective budget deficits, the American IT companies’ meagre contributions to state coffers can only arouse the appetites and the ire of finance ministers.
Due to their use of tax avoidance techniques, these giants pay a lower percent of their French incomes in taxes than domestic SMEs. For 2017, Google announced a turnover in France of 325 million euros and declared that it paid 14 million in taxes. However, its advertising revenues in France are estimated to total 2 billion euros.
French Finance Minister Bruno Le Maire has tried to convince his European colleagues that they share a common interest in taxing these companies. Doing it at the European level would make sense as such companies compel member-states to offer tax advantages. Moreover, for the 27 countries of the EU to present a common front could ensure more guarantees than going it alone in the fight against these economic giants.
The GAFA (Google, Apple, Facebook, Amazon) have a market capitalization of 3,000 billion dollars, the equivalent of the German GDP and nearly 1.25 times higher than the French GDP.
But until now France has failed to propose such a measure, because many European countries are understandably cautious about the prospect of Europe-wide taxation. Some of them especially are dumping taxes to keep these companies. The Germans, for their part, are afraid that an American response to the GAFA tax would provoke them to to introduce additional excise duties on their car exports to the USA. While China also has its own digital giants, in Europe it is mostly the American multinationals that dominate.
France has therefore decided to act alone, introducing a tax of 3% on the revenues the digital companies make in France.
Donald Trump resents the inventive new tax scheme, especially given that a foreign country is penalizing American companies. He immediately denounced this measure. US trade representative Robert Lighthizer announced the opening of a proceeding in Section 301 of the US Trade Act of 1974 that allows the President to respond to trade practices and taxes contrary to US interests.
Bruno Le Maire protested, declaring that France retains the sovereign right to determine its taxation policy and that between allies, disagreements should not be resolved with threats.
Are we going to witness a trade war between France and the United States, comparable to that under way with China?
In commercial matters, the approaches of the Europeans toward China don’t differ too much from those of Washington. In commercial matters (but not in tax matters) it is the European Union which is competent. But instead of standing together with Brussels against Beijing, Washington decided to attack China and the European Union.
For Trump, there is only one argument that counts: the trade balance. The USA has a deficit of almost 400 billion dollars with China and 170 billion with the EU. In Trump’s eyes, from now on, the alliance’s bonds have became inoperative.
Although the US and Europe have been strategic NATO allies for 70 years, Trump has not hesitated to declare, that in economic matters, the Europeans have became enemies. The latter are disconcerted in the face of such hostility from Washington. Should they remain unresponsive in the name of a strategic dependency, more related to history than to current needs? Or will Trump trigger Europe to develop a real awareness of the need to move towards strategic autonomy, something so often mentioned but never implemented?
Trump does not take into account the opinion of European allies on strategic issues. He mistreats them as no American president had done before him. The patience of the Europeans might not be eternal, except to agree to no longer be regarded as sovereign allies, but as mere vassals.