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Update: In November 2021, the United States reached a similar deal with India and Turkey, the two countries that were not included in the previous deal with the five European countries. All US tariffs in retaliation for foreign taxes on digital services have been removed.

Abstract

  • The United States has reached a agreement to end the tariffs he had threatened against five European countries in exchange for the abolition by these countries of taxes on digital services (DST) on large American technology companies.
  • The tariffs are said to have covered $ 3.0 billion in goods traded and cost the United States $ 739.5 million annually.
  • The United States has similar potential tariffs that are expected to go into effect in November against India and Turkey, unless an agreement is reached with those countries.
  • The Biden administration is expected to limit the use of tariffs to bolster its interest in other policy areas, as the practice undermines U.S. trade relations with its strategic allies.

introduction

On October 21, 2021, the United States announced that it would end the tariffs it had threatened against Austria, France, Italy, Spain and the United Kingdom (United Kingdom).[1] In return, these five European countries will end up removing the digital services taxes (DST) they currently impose on large US tech companies. Taken together, the tariffs would have covered $ 3.0 billion in imports and cost $ 739.5 million per year. The total elimination of these tariffs, which never took effect, eliminates the threat that American consumers face tariff-induced inflation on certain products from Europe. The United States has threatened India and Turkey with similar tariffs that will go into effect at the end of November, unless an agreement is reached with those countries. Tariffs against India and Turkey would cover $ 425.5 million and cost the United States $ 106.4 million annually.

The Biden administration should limit the use of tariff threats as leverage on non-trade issues such as daylight saving time, as the practice adds stress and division to relationships with strategic allies, already at a relatively low level. low for various reasons. These relationships with strategic allies are essential to counter China’s growing economic and global influence.

Digital Services Taxes and Section 301 Surveys

On July 19, 2019, former President Trump’s US Trade Representative (USTR) initiated Section 301 investigations against the French DST into major US technology companies.[2] Section 301 of the 1974 Trade Act allows the USTR to impose trade restrictions on countries it deems to be engaging in unfair trade practices against US companies.[3] The USTR found that French daylight saving time was discriminatory and restrictive against a few large American technology companies, including Amazon and Google.[4] The USTR ultimately imposed 25% tariffs on $ 1.3 billion in imports from France, but ultimately suspended tariffs “to allow more time for bilateral and multilateral discussions that could lead to to a satisfactory resolution of this matter “.[5]

Throughout 2020 and 2021, the USTR conducted similar Section 301 investigations into many other countries for their DSTs. The USTR under President Biden finalized tariffs of 25% in June 2021 on some products from Austria, India, Italy, Spain, Turkey and the United Kingdom. As with France, the USTR immediately suspended tariffs until the end of November 2021 to show its goodwill towards bilateral and multilateral negotiations to resolve disputes over DST.[6]

The rates

The table below lists the approximate value of U.S. imports that would be subject to retaliatory tariffs if imposed. It also displays estimates of how much American consumers and businesses would pay as a result of these tariffs.

Based on 2019 import figures, tariffs on the seven countries would cover $ 3.4 billion in goods. U.S. consumers and businesses are expected to pay at least $ 845.8 million per year in additional upfront costs as a result of these tariffs.

Table 1: List of tariffs (based on 2019 import figures)

An Excel file detailing the prices and the products concerned is available here.

As noted, the United States has removed tariffs for Austria, France, Italy, Spain, and the United Kingdom. The corresponding tariffs for these countries are highlighted in yellow in the table above. This means the United States will avoid a cost increase of $ 739.5 million per year. Retaliatory tariffs on certain Indian and Turkish products are still expected to come into effect at the end of November this year, unless a similar deal is reached. These tariffs on Indian and Turkish products would cover $ 425.4 million in imports and cost the United States $ 106.4 million annually.

Tariffs are usually chosen according to one of three strategies: increasing revenues, protecting domestic industry, or gaining political influence in a foreign country. The retaliatory tariffs of the United States were chosen for the latter reason, to gain influence in the fight against DST against European countries. Since protecting the domestic industry is not a priority with these tariffs, most of the goods covered are not routinely produced in the United States. For example, the tariffs in France would have covered luxury items such as handbags and cosmetics. Tariffs on Italy are said to have covered items such as handbags, men’s suits and leather shoes. These tariffs would have done nothing to protect the American industry since it produces a small amount of high-end fashion and luxury items compared to European industry. These luxury goods are also disproportionately consumed by high income individuals and families; therefore, the impact of the tariffs would have fallen on a relatively small number of wealthier US consumers.

Tariffs and commercial relations

As the Trump administration threatened to strike back at DST tariffs by imposing tariffs on luxury goods only on France, the Biden administration threatened similar tariffs on six other countries. In doing so, the administration hopes to deter foreign countries from applying targeted taxes on US tech companies. Unfortunately, the tariffs in question would end up imposing costs on American consumers. Threatening tariffs is also risky from a broader international trade cooperation perspective, as a strong US-EU alliance is essential to counter China’s growing economic influence. The Biden administration is expected to limit the scope of the tariffs it threatens given the additional stress they place on the United States’ relationship with its strategic allies. These relationships will be crucial in advancing and securing U.S. global economic interests in the future.

[1] https://home.treasury.gov/news/press-releases/jy0419

[2] https://ustr.gov/sites/default/files/enforcement/301Investigations/Initiation_of_Section_301_Investigation.pdf

[3] https://www.americanactionforum.org/insight/from-the-trump-to-biden-administration-protectionism-and-trade-enforcement-actions/

[4] https://ustr.gov/sites/default/files/Report_On_France%27s_Digital_Services_Tax.pdf

[5] https://ustr.gov/sites/default/files/enforcement/301Investigations/France_Digital_Services_Tax_Notice_July_2020.pdf

[6] https://ustr.gov/issue-areas/enforcement/section-301-investigations/section-301-digital-services-taxes

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