Trump Cranks Up Pressure on Europe, Renewing Tariff Threat

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President Donald Trump put European leaders on notice, renewing a threat to hurt the economies of transatlantic allies if they aren’t willing to compromise on a trade deal before the U.S. elections.

Speaking at the World Economic Forum in Davos, Switzerland, Trump departed from the more conciliatory tone he struck earlier in the week, once again highlighting the option of tariffs on imports of European cars and parts and claiming that he targeted China first in his trade war because an unfair EU is harder to deal with.

“They have trade barriers where you can’t trade, they have tariffs all over the place, they make it impossible,” Trump said Wednesday. “They are frankly more difficult to do business with than China.”

The move marked a doubling-down on a strategy built on tariff threats that has yet to work for Trump with European officials who have consistently resisted what they see as efforts to bully them into a deal. The president agreed to hold fire on auto tariffs in July 2018 after the EU and U.S. agreed to work toward a limited deal on industrial tariffs.

But progress stalled after what EU officials say was an agreement by Trump not to include agriculture in the talks ran into opposition from the U.S. Congress. Trump has already hit $7.5 billion of EU exports with levies over an airline dispute. He also threatened tariffs against France over a new digital services tax, although a truce was announced Wednesday to give more time for negotiations.

Trump’s push illustrates his desire to move quickly on talks with the EU and the U.K. now that he has signed a partial agreement with China. But the processes for those discussions are on slower tracks, making the U.S. president’s call for deals to be done this year more challenging to meet, even if some progress is possible on less-controversial issues.

‘Find Solutions’

European Commission President Ursula von der Leyen, who will head to Washington in February for trade talks with Trump, has said she would work on a broad, new agreement with the U.S. that would cover not only trade, but also technology and energy. The escalation comes at an awkward time for the bloc, as it prepares to begin negotiations with the U.K., which will leave the EU later this month.

Trump has also been intervening in those talks, urging the U.K. to work with him on a deal first.

“We don’t think it’s a good idea to have trade disputes over months but that we sit down together, we negotiate and find solutions, we exchange some numbers and views on fairness,” von der Leyen told reporters in Davos. “And we’re expecting in a few weeks to have an agreement that we can sign together.”

Perhaps the most brazen American warning of the day came from U.S. Treasury Secretary Steven Mnuchin. On a Davos panel with U.K. Chancellor of the Exchequer Sajid Javid, Mnuchin dangled the prospect of using tariffs on automobile imports against countries that institute their own taxes on technology companies.

Such a move would devastate Germany’s already sluggish manufacturing sector, and would likely result in EU retaliatory tariffs aimed at the American economy.

“If people want to just arbitrarily put taxes on our digital companies, we will consider arbitrarily putting taxes on car companies,” Mnuchin said. “We think the digital tax is discriminatory in nature.”

Trump Cranks Up Pressure on Europe, Renewing Tariff Threat

The Trump administration may run into difficulty introducing car tariffs arbitrarily, as Mnuchin said, because the law it has invoked confines the justification to national security. The Trump administration has so far refused to release a report justifying the possible tariffs despite demands from Congress, where opposition to them is bipartisan.

Javid responded by saying the U.K. government plans to go ahead with its digital tax in April, telling the panel that the levy is designed to be temporary and will go away when there’s an international agreement.

Digital Tax

Last year, France introduced a 3% levy on the digital revenue of companies that make their sales primarily in cyberspace, such as Facebook Inc. and Alphabet Inc.’s Google. The U.S. threatened tariffs as high as 100% on $2.4 billion of French goods, saying the measure discriminates against American businesses.

The U.S. and France temporarily resolved the issue Wednesday, French Finance Minister Bruno Le Maire said. At a meeting with Mnuchin on the sidelines of the World Economic Forum, Le Maire agreed to delay collecting the digital tax until the end of 2020. In exchange, the U.S. will refrain from imposing the punitive tariffs on French goods it had threatened as retaliation.

But even if the truce holds, Paris and Washington still need to find a way to overcome their fundamental differences on the tax. Le Maire said France will only ultimately refrain from imposing its levy in 2020 if there is a global agreement on taxation at the Organization for Economic Cooperation and Development.

Talks at the OECD, however, have been dragging on for years and involve more than 135 countries. The participants are due to approve the architecture for digital tax at the end of January, but Le Maire said the U.S. still doesn’t agree on that.

“France will never withdraw its tax unless an international solution is adopted,” Le Maire said. “That means that digital companies will pay their fair share of tax in 2020, either under an international regime if there is an agreement at the OECD, or under the national regime if there is no agreement.”

Le Maire added that the stakes couldn’t be higher.

“The alternative to this constructive compromise would be a trade war,” he said. “And once you start a trade war it is difficult to get out of it.”

©2020 Bloomberg L.P.

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