France has imposed/threatened a “digital services tax” on the likes of Amazon, Apple, Facebook, and Google — all American companies.
The tax is 3% of gross revenues from digital services earned in France, but only for companies with more than 25MM Euros in French revenue and 750MM Euros in worldwide gross revenue. The tax money goes to France.
When you work through the math it puts a bullseye on Amazon, Apple, Facebook, and Google while giving a pass to many European companies who collectively are just as big as these digital behemoths. This is not an accident.
This tax was discussed for some time period, but its enactment caught a lot of folks by surprise. One who was not caught by surprise was President Donald J Trump.
President Trump had spoken to the French President Emmanuel Macron cautioning him that such a tax would be met with an American response.
President Trump, in his inimitable fashion said, “Don’t do it because if you do it, I’m going to tax your wine.” Macron blew him off. French wine is a huge industry.
The French Finance Minister, Bruno Le Maire, sniffing at the ruffian DJ Trump, suggested that taxes and tariffs were completely unrelated. Good luck with that, Bruno.
Taxes and tariffs are core elements of trade while technology, digital services are a critical element of American commerce.
President Macron, realizing he had kicked a hornet’s nest, took the tack of suggesting the tax would be withdrawn if the Organisation for Economic Co-operation and Development would impose a global tax on digital services in its place. This is a total three-card-monte slight of hand. Do not fall for it.
In this manner, President Macron thinks the USA will not retaliate against France since they would no longer be the initiator and beneficiary of the tax. Those paying the tax don’t really care to whom they pay it. A tax is a tax.
Yes, the French President wants all digital services to be taxed worldwide, but he doesn’t want that tax revenue to go to the country of origin of the companies. None of the money comes to the USA.
What can President Trump do, Big Red Car?
President Trump has several options:
1. President Trump can impose a tariff on French wine. This is a hugely sensitive subject with the French because they have an extremely favorable tariff situation right now.
The European Union levies a $0.11 per bottle for still wine and $0.29 tariff on a bottle of American sparkling wine entering Europe.
The USA charges a similar tariff of $0.05 per bottle for still wine or $0.14 per bottle for sparkling wine. [Your Big Red Car’s favorite champagne is French as are all “real” champagnes.]
US tariffs are less than half of the European Union tariffs. This is a perfect example of what President Trump condemns as poorly negotiated legacy trade deals. Why the Hell does a bad deal like this exist? What moron agreed to this arrangement?
European imports into the USA provide one third of the wine market while US exports to Europe account for less than 16% — behind both Chile and Australia that pay lower tariffs.
2. President Trump can bring a complaint to the World Trade organization which stands for equal and fair tariffs. Hard to see how the French would defend this arrangement. Harder to understand why the USA agreed to it in the first place.
3. There is a provision in the US Tax Code that allows the US to double taxes on a French company who is the beneficiary of an unfair tariff situation.
The enactment of tariffs as part of a trade relationship are quite common. When the Trump administration placed tariffs on aluminum and steel to combat “dumping,” the European Union immediately retaliated by imposing punitive tariffs on American whiskey imports.
Retaliation for bad trade behavior is a fair tool for countries.
So what, Big Red Car?
Dear reader, this is one of the reasons I like the policy focus of the Trump administration — read that carefully. While I give President Trump personal credit for dealing with problems like this, it is the policy I applaud, not the personality. Sure, President Trump gets credit for being the guy with the big stick, sure he gets credit for swinging the big stick, but it is the POLICY of which your Big Red Car approves.
This is perfect proof of the validity of both Candidate Trump’s and President Trump’s lament that the United States gets screwed — routinely and substantially — in international trade agreements. What moron agreed to such an unbalanced trade relationship on wine between the USA and the European Union? Why would anybody oppose America getting a fair deal?
Can we allow foreign countries to tax American companies for profits derived in that country? You do realize that the Amazons, the Apples, the Facebooks, the Googles are going to attempt to take a credit for these taxes against their US taxes, right? So the ultimate screwee is going to be the US Treasury and the American taxpayer.
Bottom line it, Big Red Car
This is another example of the benefit of having the Trump admin running the show as it relates to free trade, fair trade, and protecting American business interests. California wine growers? Now, is where you say, “Thanks, Trump.”
There will be the odd wag who will point out that part of the Trump empire is a wine company in Charlottesville, Virginia, that was bought out of bankruptcy by Trump (former owner John Kluge and then soon-to-be-divorced wife, Patricia, when he was the richest American) and developed into the largest vineyard in Virginia plus the addition of the Albemarle Estate hotel. Trump stole this facility, added property to it, and now oversees something that is quite extraordinary.
The Trump Winery sells almost all of its vintages domestically, with little to no export. Such wine export is often undertaken by wine brokers.
So, there you have it, dear readers.