Trade tensions rise as US threatens car tariffs

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Trade tensions with the US have spiralled after the chancellor, Sajid Javid, took a defiant stance at Davos.

US treasury secretary Steve Mnuchin has threatened new tariffs on UK carmakers after the chancellor defied pressure to cancel a new tax on tech firms.

Mr Javid said the UK would not back down over the tax which will hit US firms like Apple, Amazon and Facebook.

A trade deal with the EU would take priority over one with the US after the UK leaves the EU this month, he added.

Both officials said Boris Johnson and Donald Trump would discuss the trade agreement and the tech tax this week during the World Economic Forum in Davos.

The UK government sees a new trade deal with the US as a high priority after Britain leaves the European Union at the end of this month.

But some parts of the UK economy are closely integrated with the EU, its largest trading partner.

The comments from Mr Javid and Mr Mnuchin came during a panel discussion at the annual gathering of business and government representatives in Switzerland.

The new tax is aimed at firms that do a lot of business in the UK but don’t pay taxes based on the size of their sales.

France this week agreed to suspend a similar measure after the US had threatened to impose new levies on French exports of wine, cheese and handbags.

Mr Javid said that while the UK would like to see an international agreement, he planned to go ahead with the introduction of the new multibillion pound tax, which is due to take effect in April.

Mr Javid described the new tax as “proportionate”.


US Treasury Secretary Steve Mnuchin replied that the UK and the US would “be having some private conversations” about the planned tax.

“We think the digital tax is discriminatory in nature… if people want to arbitrarily put taxes on our digital companies we’ll consider arbitrarily putting taxes on car companies.”

Former UK chancellor, George Osborne, told the BBC that he thought the government would be wary of provoking the US over the new tax.

“It will be a very brave British government that walks into a trade war with the United States at the very moment when centrepiece of its economic policy is to strike a trade deal with the United States,” he told the Today Programme.

France delays

There has been growing pressure for a global agreement over how large multinational companies are taxed, with many governments unhappy that firms are able to register for tax purposes in places where they do a very small proportion of their business.

Several countries including the UK and France announced they would introduce unilateral changes to the way these firms, many of them US companies, are taxed.

However the US argues that American tech giants, including Apple, Amazon, Google and Facebook, are being unfairly targeted and has called for governments to wait for an international agreement.

This week France agreed to pause a new tax introduced last year after an angry response from Washington, including the threat of tariffs on exports of French products such as champagne and cheese.

‘Hold fire’

The UK is under pressure to follow suit and delay its plans to levy tax worth 2% of the revenues of search engines, social media companies and online marketplaces, a change which would bolster public finances by £500m a year.

The Organisation for Economic Cooperation and Development (OECD), which is overseeing efforts to find a joint solution, has also urged national governments to wait for a multilateral agreement.

Secretary General Angel Gurria told the BBC that without that there would be a “cacophony and a mess” of 40 countries going their own way with “tensions rising all over the place”.

Mr Gurria said that the UK government should “absolutely hold fire and contribute to a multilateral solution”.

What is a digital sales tax?

France, along with several other European countries, wants to limit the tech giants’ ability to avoid taxes.

Many governments are concerned that US technology giants are avoiding taxes in the European Union. They argue taxes should be based on where the digital activity – takes place, not where firms have their headquarters. So if a UK consumer searches for a product or posts things online, and advertising is sold alongside those pages, the business should count – for tax purposes – as taking place in the UK.

But it has proven difficult to agree exactly how a new system would work.

Italy, Austria and Turkey are also considering imposing unilateral levies.

But trade officials in Washington say US firms are being unfairly targeted.

Mr Gurria is hosting a meeting between the French finance minister Bruno Le Maire and US Treasury Secretary Mr Mnuchin to confirm a ceasefire that should prevent a tit for tat trade war between the US and Europe.

But Mr Mnuchin, in an interview with the Wall Street Journal, warned “they’ll find themselves faced with President Trump’s tariffs. We’ll be having similar conversations with them”.

However, leaders of the largest tech companies say they would welcome reform of the tax system.

Microsoft President Brad Smith told the BBC “it does make sense for big tech companies to pay appropriate taxes”.

And Apple chief executive Tim Cook in Ireland on Tuesday supported the OECD’s effort to find a global solution.

Officials preparing US-UK trade talks have expressed concern that the US would raise its objections to a UK digital sales tax in trade negotiations.

The UK Treasury said: “We’ve committed to introduce our Digital Services Tax from April 2020. It will be repealed once a global solution is in place”.

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