Key Takeaways:

  • Threatened 25% tariffs on French luxury goods are suspended.
  • USTR is still looking at tariffs in retaliation for taxes on U.S. global tech companies.
  • Biden’s new USTR will face immense pressure to negotiate the digital taxation issue in the first few weeks of her tenure.

In the last few weeks of former President Trump’s term in office, the United States Trade Representative (USTR) suspended its previous plans to impose tariffs on certain French luxury goods, as we discussed here and here.

On June 26, 2020, USTR published a notice that it was considering tariffs on exports such as olives, coffee, beer, gin, and trucks coming into the United States from France, Germany, Spain, and the United Kingdom. This measure was part of a larger trade strategy of the Trump Administration called “Carousel Retaliation”, which involves targeting tariffs[1] across industry sectors in order to cause disruption and uncertainty across business and supply chains. These tariffs were originally proposed against France in response to its decision to levy 3% taxes on certain revenue from tech companies operating in the European Union, a move which the U.S. felt unfairly targeted American companies.[2]

Last year, USTR released several “Section 301” reports, which concluded that foreign digital taxation laws in France, Italy, India, and Turkey discriminated against U.S. tech companies and placed an undue burden on U.S. commerce.[3] In response, USTR had originally intended to impose 25% tariffs on various handbags and cosmetics, a move which would have targeted $1.3 billion worth of French goods.[4] Those were set to take effect on January 6, 2021.

Instead, on January 7, 2021, USTR announced they would pause the implementation of tariffs while they made further investigations into the digital taxes imposed on American companies by other countries, leaving open the possibility of coordinating tariffs against French goods with future tariffs. As of January 14, 2021, USTR has found that digital taxes in Spain, Austria, and the UK are discriminatory against U.S. companies, leaving open the possibility of tariff actions against those countries.[5]

Even so, the suspension came at a significant moment in the transition of power between presidential administrations. President Biden’s nominee to head the USTR, Katherine Tai, will face immense pressure to negotiate a settlement regarding digital taxation in the first few weeks of her tenure. It remains to be seen how the new administration will address these trade tensions, however, the European Union has expressed its willingness to engage with the Biden administration and quickly resolve issues between the two parties.[6] And though U.S. tech companies are still divided, the Biden administration has signaled its desire to find an international solution for minimum corporate tax rates.[7]