The US President has made it clear he doesn’t want any countries to impose a digital services tax (DST) on American companies. If countries don’t abide by this request, he has said he will hit them with a 100% tariff on all goods entering the USA.
While this tactic has worked before, many EU countries have already implemented or plan to implement these taxes, and there’s no word yet on whether they’ll heed his warning. If not, there’s a chance that more international trade disputes and/or instability may be on the horizon.
US President Threatens Tariff On Any Country That Imposes a DST
In a social media post, US President Donald Trump made it clear that he didn’t want countries to impose a DST on American companies. In fact, he warned that any country that did so would be hit with a 100% tariff.
Specifically, he said: “Please let this statement serve to represent that any Country that imposes such a Tax will immediately be met with a 100% TARIFF on any and all Goods sent to the United States of America.”
He also added that the new tariff would supersede any other agreement, whether they’ve been implemented and signed or not. If implemented on a country or multiple countries, this tariff could slow the exploding cross-border commerce industry and make things much more expensive for all parties involved, including sellers and consumers alike.
The post also comes less than two weeks after the EU finally approved the US trade agreement to cut tariffs on US goods, though the deal didn’t specifically address DSTs.
The Threat Has Worked Before
While some people may be uncertain about this method and the actions taken by the President, this type of threat has worked before. Back when Canada had a 3% digital services tax in place, Donald Trump demanded that it be removed or he would cut off trade talks with the country.
In an effort to save trade negotiations and prevent further issues, Canada agreed and repealed the tax soon after, hoping it would bring the US back to the table for negotiations around a trade agreement.
So while the situation wasn’t the exact same as it is now, Trump has made these sorts of demands before, and it has worked for him, so it’s not surprising to see him take a similar plan of action this time.
Many EU Countries Have Imposed or Are Imposing DSTs
However, there’s no guarantee it will work again. Especially as many EU countries already have DSTs in place, such as France and the UK.
For example, France applies a 3% tax on revenue that’s earned in the country from digital services provided by companies with revenue of more than €25 million (around $28 million) in the country and €750 million (around $856 million) worldwide.
The French President has said in the past that France wouldn’t bow to the pressure applied by Trump, but that was before the US President sent out this latest post.
There are several other countries in the region that are planning to impose DSTs as well, such as Belgium and Germany. Many of these countries argue that large tech companies, which are often American, get a ton of sales internationally, but don’t pay as much in terms of corporate tax as they feel they should.
On the other hand, those in the President’s administration view these as predatory taxes that unfairly target American companies and penalize things like American innovation.
Our Take
More International Trade Disputes May Be on the Horizon
Just as it seemed like the trading conflict between the USA and the EU may slow down due to the approved trade agreement, that may not be the case anymore.
This dispute over DSTs may lead to even more instability within international trade than before, especially if France or any of the other countries continue to levy these taxes against US companies in the face of these threats.
Only time will tell what occurs, but if these 100% tariffs do end up being imposed on other nations, it’ll be incredibly harmful to both consumers and companies, and increase costs for just about everyone involved in the industry.
