France Warns U.S. of Fast Trade Retaliation But Hopes for Truce

(Bloomberg) --

France warned the U.S. that retaliation will come fast if Washington puts more tariffs on French products and escalates a digital tax dispute between the two countries.

But French Finance Minister Bruno Le Maire also said in Paris Friday that he sees a possible compromise with the Americans that avoids a broader transatlantic trade war.

“If there is no compromise we will continue to apply our national tax,” he said. “If there are U.S. sanctions against our tax, which is not discriminatory — it also hits Chinese and European companies — we can count on the support of the European Commission and other EU states. If there are sanctions against France, the EU would react fast and strongly.”

The Trump administration is threatening to hit $2.4 billion of French products with import taxes in response to a 3% tax France instituted on the digital revenue of large tech companies including Google, Apple, Facebook and Amazon. Among the products targeted with duties of as much as 100% are luxury items like wine, cheese and makeup. One American wine merchant called it the biggest threat to the industry since Prohibition a century ago.

The EU’s chief trade negotiator, Ireland’s Phil Hogan, just wrapped up a trip to the U.S. capital where he showed can match the Trump administration’s tough talk. He called President Donald Trump “obsessed” with the goods trade deficit between the two trading partners as he focuses on re-election in November. Transatlantic trade in goods and services is worth more than $3 billion a day, according to Hogan.

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

It sets up a showdown in the Swiss Alps between Le Maire and U.S. Treasury Secretary Steven Mnuchin, who set a deadline to resolve the disagreement around the middle of next week. They’re planning to talk Wednesday on the sidelines of the World Economic Forum’s meeting next week in Davos.

Also on the attendee list at the annual gathering of global elites: Trump himself, fresh from signing a deal with China, and scheduled to speak Tuesday before crowds of multilateralists he regularly critizises. Just two months ago called the 28-nation EU “terrible. In many ways, worse than China” on fair trade.

Charting the Trade War

France Warns U.S. of Fast Trade Retaliation But Hopes for Truce

The Senate approved Donald Trump’s U.S.-Mexico-Canada free trade agreement on Thursday, handing the president a major political win on the same day senators were sworn in as jurors in his impeachment trial. While impact of the USMCA on the U.S. economy is projected to be small, Trump now can claim trade victories with five of the U.S.’s top six trading partners: Canada, China, Japan, Mexico and South Korea. Left out so far are the European Union and the U.K., but they’re next in line.

Today’s Must Reads

  • Avoiding the WTO | The U.S.-China deal may bolster Trump’s theory that unilateral tariffs are a better enforcement tool than the World Trade Organization.
  • At odds | Apart from their phase-one trade agreement, the U.S. and China are butting heads on everything from technology to human rights to territorial disputes.
  • Island issues | The U.S., Japan and South Korea are keen to invest in Indonesia’s Natuna Islands as President Joko Widodo steps up efforts to rebuff Chinese claims over the resource-rich waters in the South China Sea.
  • Brazil buzz kill | Trump’s trade deal may have been short on details about Chinese agriculture purchases, but one thing seems clear: Brazil’s two-year soybean bonanza is likely over.
  • Resilient China | The world’s second-largest economy displayed greater-than-expected strength in December, handing Beijing vindication of its new-found moderation in economic stimulus.

Economic Analysis

  • Trade deal risk | The targets for goods exports in the U.S.-China deal are extremely stretching, according to Bloomberg Economics. 
  • Clouded outlook | Singapore’s exports ended 2019 on a positive note, but momentum going forward may be weak despite signs of stabilization in China’s economy. 

Coming Up

  • Jan. 20: Taiwan export orders
  • Jan. 21: South Korea 20-day exports
  • Jan. 23: Japan exports
  • Jan. 24: Monthly release of the CPB World Trade Monitor
  • Jan. 21-24: Business and government leaders meet at the World Economic Forum’s annual meeting. Stay on top of all of the action via Bloomberg’s Davos Diary newsletter. Click here to subscribe.

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