Escalation of US-EU digital tax conflict feared

Now that China and the United States have agreed on phase one of a broader trade deal to end their trade conflict, a transatlantic trade war between the US and the European Union could escalate.

European Commissioner for Trade Phil Hogan was in Washington last week trying to reset the deteriorating trade relations, but he said US President Donald Trump apparently wants to fight with Europe to help his approval ratings in an election year.

"It's not going to be unity in the short term, because President Trump operates on the basis that he wants a grievance against somebody in order to accentuate his popularity in certain (states)," Hogan said on Thursday in a video conference interview with Peter Mandelson, the European commissioner for trade between 2004 and 2008.

The transatlantic relations deteriorated rapidly as Trump implemented his "America First" policy toward trade partners, including European allies.

The Trump administration is considering a 100 percent tariff on $2.4 billion worth of French wine and luxury goods in retaliation for the digital services tax that France introduced last year. Several other EU member states are planning to introduce the tax as well.

The US has said the digital services tax discriminates against US tech giants such as Amazon, Google and Facebook.

The EU said it stands with France and vowed retaliation if the US follows through on its tariff threat.

The US indicated it won't act until after a scheduled meeting this week between US and French officials at the World Economic Forum in Davos, Switzerland. Trump and European Commission President Ursula von der Leyen are also expected to meet in Davos.

In Washington, Hogan, an Irish politician who assumed the current title on Dec 1, met with senior US officials and some lawmakers in the Senate and the House.

"The meetings were in the main both positive and productive," he said during a talk on Thursday at the Center for Strategic and International Studies, a Washington-based think tank.

Hogan defended the digital services tax, saying that citizens in the US as well as Europe want digital companies to contribute their fair share of taxes.

He said the EU fully supports the discussions taking place at the Organization for Economic Cooperation and Development on a global digital services tax, but added that "we have been equally clear that we have no option but to regulate on our own if the US blocks a global agreement".

Hogan rejected the US' labeling of the EU as a security risk to justify the imposition of tariffs, referring to US punitive tariffs on EU steel and aluminum imposed in early 2018 under Section 232 of the US Trade Expansion Act of 1962. The EU retaliated by slapping tariffs on US farm goods and other products.

Trump has also said European cars pose a national security threat and vowed to impose punitive tariffs on $60 billion of annual European car and auto-parts exports to the US. So far, the US has not followed through with the tariffs.

"This narrative is hurtful to both our people," Hogan said.

"Imposing tariffs on each other serves nobody's long-term interest. Tariffs are in reality just another form of taxation on businesses and consumers," said Hogan.

"There are no winners in a trade war," he said.

Germany confirmed last week that the US issued a fresh threat to impose tariffs on European cars if Germany, France and the UK did not trigger a dispute-resolution mechanism under the Iran nuclear deal. But Germany said the renewed pressure had no influence on the recent decision by the three European nations to trigger the mechanism, according to The Guardian.

Hogan also said the EU regrets that the US decided to move ahead with tariffs in the Airbus case and the recent announcement to potentially subject additional EU goods to tariffs.

The US said early last month that it is entitled to impose tariffs on a wide range of European goods after the World Trade Organization rejected the EU's claims that it no longer provides subsidies to Airbus. The US won its case in October when the WTO gave it the right to impose new tariffs on $7.5 billion of EU exports over the EU's illegal subsidy to the airplane manufacturer.

Hogan said that leaves the EU with no alternative but to follow through in due course with its own tariffs in the Boeing case. The EU is awaiting a WTO decision on a parallel case in the first half of this year over the US government's subsidies to Boeing.

Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, a Washington-based think tank, expects the US to ramp up its trade demands on the EU this year.

He said the EU will try to maintain a dialogue."But I don't see how it can concede to very many US demands," he told China Daily.

Hufbauer said that if Trump puts new tariffs on the EU, that could push China and the EU closer together.

However, Alicia Garcia Herrero, a senior fellow at the Brussels-based think tank Bruegel, said the EU still has much higher business, in terms of exports and foreign direct investment, with the US than with China, so it is "very hard" for the EU to get closer (with China).