By Andrew Restuccia and Greg Ip
DAVOS, Switzerland -- Fresh threats by the U.S. to place tariffs
on some of its closest allies -- just days after reaching an
initial trade deal with China -- show that economic pressure
remains President Trump's weapon of choice in international
disputes.
Even as he lauded the phase-one deal the U.S. signed with China
last week, Mr. Trump on Tuesday threatened another trade fight with
Europe. Mr. Trump, in an interview on the sidelines of the World
Economic Forum, said he would impose new tariffs on European car
imports if the European Union didn't agree to a new trade
agreement.
Hours earlier, U.S. Treasury Secretary Steven Mnuchin warned
that Italy and Britain would face U.S. levies if they proceeded
with a tax on American digital giants such as Alphabet Inc.'s
Google and Facebook Inc.
The double salvo shows Washington will continue efforts to bend
other nations to its will by applying economic pressure on allies
and adversaries alike -- everything from sanctions on longtime
adversary Iran to possible tariffs for longtime partners in
Europe.
France agreed Monday to delay the imposition of a digital tax in
the face of threats of U.S. tariffs on French exports. In an
interview at Davos on Tuesday morning, Mr. Mnuchin said French
President Emmanuel Macron had agreed to hold off on the tax through
the end of the year while the two countries worked out a permanent
resolution.
Some U.S. officials view Mr. Macron's move as a climb-down under
pressure from the administration, which had threatened a 100% tax
on French wine if the digital tax wasn't paused.
If the U.K. and Italy proceed with planned digital taxes on
American companies, "they'll find themselves faced with President
Trump's tariffs, " Mr. Mnuchin said. "We'll be having similar
conversations with them."
In response, the U.K. said it would go ahead with its
digital-services tax in April if no comprehensive, multilateral
deal on how tech companies should be taxed was found. The Italian
government declined to comment on whether it would proceed with a
similar tax last year that was to take effect in 2020.
In Tuesday's interview with The Wall Street Journal, Mr. Trump,
who railed against the large trade deficits European countries hold
with the U.S., said he would impose tariffs on some $60 billion
worth of European automobiles and car parts if he couldn't strike a
trade pact with the EU.
"They know that I'm going to put tariffs on them if they don't
make a deal that's a fair deal," said Mr. Trump, who declined to
say what deadline he was imposing. "They know what the deadline
is," he said, adding that he would reveal it publicly soon.
The EU has promised to respond to U.S. tariffs with levies on
about $100 billion of trans-Atlantic trade. Talks on removing
barriers to U.S.-EU trade have stumbled on several issues, notably
pressure by the U.S. on Europeans to open their agricultural
markets to U.S. companies.
The administration believes that there is a fundamental
imbalance in the openness of the U.S. to European imports and
Europe's openness to U.S. imports, said Peter Chase, a former U.S.
diplomat who is now a Brussels-based fellow at the German Marshall
Fund. "They feel that simply trying to reason with Europe -- just
like simply trying to reason with China and Japan -- has not
worked," he said. "So, they will look for other sources to force
Europe to think about that fundamental imbalance."
Tuesday's threats could herald months or years of economic
tensions. Indeed, even with a phase-one trade deal with China in
place, Mr. Mnuchin said a second phase wouldn't necessarily be a
"big bang" that removed all tariffs. "We may do 2A and some of the
tariffs come off," he said. "We can do this sequentially along the
way."
Friction over the question of taxing U.S. tech giants is also
likely to continue.
Countries working through the Organization for Economic
Cooperation and Development recently arrived at a plan for
apportioning taxes paid by multinational companies on activity that
spans borders and isn't easily captured by existing rules,
including digital activity. The U.S. has signaled it objects to the
plan.
Frustrated with progress on the OECD talks, France announced the
tax last year as a way of collecting revenue from web-based
companies that pay little or no tax on substantial sales in
France.
The OECD is set next week to publish an update on the talks,
ahead of a meeting of finance ministers from the Group of 20
leading economies Feb. 22-23 in Riyadh. The prospect for success in
those talks is uncertain.
The stakes are high for Europe. Without a change to the tax
rules, European governments face the prospect of a steady slide in
their corporate tax revenues.
The Trump administration's unilateral moves, including the
tariffs threats, reflect the enduring skepticism with which it
views multilateral solutions to pressing international
problems.
In his speech, Mr. Trump touted the power of unilateral action,
arguing that his bold approach to China helped resolve problems
that had plagued the international trading system for years.
"Before I was elected, China's predatory practices were undermining
trade for everyone," he said. "Under my leadership, we confronted
the problem head on.... China has agreed to do things they would
not have done."
China's Vice Premier Han Zheng said Tuesday that Beijing would
keep promoting multilateral cooperation, including reforms to
global-governance institutions. In a speech in Davos following
President Trump's remarks, Mr. Han said "International affairs
shouldn't be dictated by any one country or a small group of
countries."
--Paul Hannon and Emre Peker contributed to this article.
Write to Andrew Restuccia at Andrew.Restuccia@wsj.com and Greg
Ip at greg.ip@wsj.com
(END) Dow Jones Newswires
January 21, 2020 17:49 ET (22:49 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.