Trump says U.S. could tax French wine in retaliation for digital tax
A student sommelier serves a glass of red wine during the 27th contest for the best student sommelier on May 24, 2019, in Tain l'Hermitage, southeastern France. /VCG Photo

A student sommelier serves a glass of red wine during the 27th contest for the best student sommelier on May 24, 2019, in Tain l'Hermitage, southeastern France. /VCG Photo

U.S. President Donald Trump threatened to tax French wines on Friday in retaliation for France's recent proposal to levy a tax aimed at big U.S. technology companies.

Trump had told French President Emmanuel Macron last week that he was concerned about the proposed digital services tax.

The digital tax primarily targets companies that use consumer data to sell online advertising. The tax is designed to stop multinationals from avoiding taxes by setting up headquarters in low-tax European Union countries. Currently, the companies pay nearly no tax in countries where they have significant sales.

"If anybody taxes them, it should be their home Country, the USA. We will announce a substantial reciprocal action on Macron's foolishness shortly," Trump tweeted on Friday. "I've always said American wine is better than French wine!"

Twitter Screenshot

Twitter Screenshot

Later in the Oval Office, Trump told reporters the tax decision was wrong and he threatened the key French export.

"They shouldn't have done this," Trump said. "I told them, I said, 'Don't do it because if you do it, I'm going to tax your wine.'"

French digital tax

The French law does not specifically target U.S. companies. It targets any digital company with yearly global sales worth more than 750 million euros (835 million U.S. dollars) and French revenue exceeding 25 million euros (27 million U.S. dollars). The revenue threshold is supposed to allow more room for smaller companies to enter the market.

However, the Trump administration emphasizes that the services covered under the tax are ones in which U.S. firms are global leaders. 

France's new digital services tax "targets U.S. firms almost exclusively and largely spares French companies," said the U.S. Chamber of Commerce.

U.S. Trade Representative Robert Lighthizer initiated an investigation earlier this month to determine whether the tax is discriminatory or unreasonable and restricts U.S. commerce. Such a finding would allow Trump to levy retaliatory tariffs.

'They shouldn't have done this.'

Trump insisted that he has a good relationship with Macron and had just spoken with him.

However, it seems none of the tax's business.

But they shouldn't have done this. They're used to taking advantage of the United States, but not with me as president.
 -  U.S. President Donald Trump

The digital tax has also riled Republican and Democratic members of the U.S. Congress. Leaders of the Senate Finance Committee have urged Treasury Secretary Steven Mnuchin to explore increasing taxes on French subsidiaries in the U.S.

France failed to persuade European Union partners to impose a Europe-wide tax on tech giants, but is now pushing for an international deal with the 34 countries of the Organization for Economic Cooperation and Development.

Potential tariffs on hold

Earlier this month, the United States threatened tariffs on an additional 4 billion U.S. dollars worth of European Union goods, including wine, cheese and whiskey - that could be hit with tariffs as part of a nearly 15-year-long dispute at the World Trade Organization over aircraft subsidies given to U.S. plane maker Boeing Co and its European rival, Airbus SE.

The EU's director general for trade, Sabine Weyand, this week said she expected the Trump administration to proceed to implement some of the tariffs after a WTO arbitrator ruled on the damage caused to Boeing as a result of illegal EU government aid to Airbus.

The U.S. Trade Representative's Office (USTR) last month said it would hold a hearing on August 19 in its probe of the planned tax, which could lead to the United States imposing new tariffs or other trade restrictions.

(With inputs from Reuters and AP)