One trade dispute with Europe may be winding down, but another is ramping up

French Online Tax Issue

The issue over France’s new three-percent tax on the revenues of some online firms came to the fore in December, when a USTR report found that the tax discriminates against US companies engaged in online data collection and web advertising. The DST, which was signed into law in July 2019, was applied retroactively to January 1, 2019. The USTR objected to that retroactivity, as well as the tax’s application to gross revenues rather than income and its application to revenues unconnected to a presence in France.

Yogurt, whey protein, butter, cheese, sparkling wine, beauty products, handbags, and porcelain products are on the USTR’s DST hit list. “USTR published an initial list of $2.4 billion of goods,” noted David Hamill, a partner in the law firm of Arent Fox, “on which it is proposing additional duties of up to 100 percent.”

An interagency committee held a hearing on January 7, “seeking comment and testimony as to whether the action is appropriate,” Hamill added.

With a little bit of luck, the Airbus-Boeing dispute could soon be resolved. But the new DST issue could usher in a new period of uncertainty in trade between the US and one of its prominent partners. Uncertainty is causing the greatest economic damage from the Trump administration’s tariff policies, according to Robert Krol, a senior scholar at George Mason University’s Mercatus Center.

“Tariffs raise the cost of imported goods for American consumers and businesses,” he noted. “These cost shocks have a negative impact on economic activity. The president’s on-again, off-again negotiating approach to trade relations hurts the US economy by raising the level of uncertainty over the future course of trade policy.”

Stop-and-Go

An index developed by economists that tracks economic uncertainty—with a higher number implying greater economic policy uncertainty—has spiked since Trump was elected, with an average of over 155, compared with 119 during the prior two years. The index’s movements since Trump has been in office, suggests “that the president’s stop-and-go approach to managing commercial relationships with our trading partners, and his economic policy in general, has led to a lack of clarity as to future policies,” according to Krol.

“There is empirical evidence that higher levels of trade and economic policy uncertainty depress US exports,” he added. “Higher economic policy uncertainty also lowers imports, reducing product variety and resulting in higher consumer prices.” Tariffs contribute to higher business costs as well because over half of US imports are inputs used to produce final products.

The most recent developments in the Airbus-Boeing case may signal the beginning of the end of trade uncertainty on that front. But a broadened dispute over the DST will likely stir the waters of trade policy volatility on another.