US threatens to hike tariffs on UK car exports

Treasury Secretary Steven Mnuchin said Wednesday that the United States would consider imposing tariffs on cars made in the United Kingdom if the country moves ahead with a tax on digital services.

Mnuchin said at the World Economic Forum in Davos, Switzerland that the United States regards digital services taxes such as the one imposed by France, and being planned by the United Kingdom and Italy, as being unfair to American tech companies.

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President Donald Trump and his French counterpart, Emmanuel Macron, agreed this week to a truce over the issue after the White House threatened to significantly increase tariffs on French goods such as wine, cheese and handbags. France has already introduced a 3% tax on digital services.

Asked what would happen if Britain moves ahead with its tax, Mnuchin said that Washington would consider imposing tariffs on UK car exports.

“If people just want to just arbitrarily put taxes on our digital companies, we’ll consider arbitrarily putting taxes on car companies,” said Mnuchin. The Trump administration official cautioned, however, that he was confident the issue would be resolved.

UK finance minister Sajid Javid, who was also on the panel, said he planned to go ahead with the digital services tax in April, even as the country seeks to negotiate a new free trade deal with the United States following Brexit.

“We’re going to have some private conversations. I’m sure this will be worked out, if not at our level then between the prime minister and the president who have an excellent relationship,” Mnuchin added.

HANGZHOU, CHINA - SEPTEMBER 09: Aerial view of nearly a thousand electric cars parked at an open area in Xiacheng District on September 9, 2019 in Hangzhou, Zhejiang Province of China. Most of them are BAIC Beijing Electric Vehicle Company (BJEV) cars and have been used as shared cars. (Photo by Zhu Yinwei/VCG via Getty Images)

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The best solution, both officials agreed, would be a global resolution that establishes new rules for how countries can collect taxes on digital services sold by companies based in other markets. Negotiations are underway at the Organization for Economic Cooperation and Development.

Under the truce agreed with Trump, France has agreed to suspend its tax until the end of this year while countries work toward a solution at the OECD, finance minister Bruno Le Maire said at a press conference in Davos. In return, the United States has agreed not to impose retaliatory tariffs.

If the OECD talks break down, Le Maire said that France will have some form of digital tax in place at the end of 2020.

UK car exports

Higher tariffs on cars made in the United Kingdom would be another massive blow to an industry that has been slammed by Brexit.

Nearly four years of uncertainty over leaving the European Union has caused UK auto production to decline for 17 of the past 18 months, according to the UK Society of Motor Manufacturers and Traders. Production dropped 17% in November, the most recent month for which data is available.

The global automakers who have built factories in Britain fear that leaving the European Union will result in new barriers to trade with their biggest market. That would snarl their supply chains, disrupt production and erode profit margins that are already razor thin.

US tariffs would also harm the industry. According to the SMMT, nearly 20% of UK car exports are to the United States.