If all seemed quiet on the tariff front, it may have only been because President Trump’s Twitter feed has been otherwise occupied.
On Friday, the U.S. Trade Representative (USTR) announced new 25 percent tariffs on $1.3 billion worth of goods from France in response to the country’s Digital Services Tax (DST). The additional punitive tariffs will target certain beauty products, as well as handbags, which could spell challenges for luxury groups LVMH and Kering, and brands like Hermès. American companies that import handbags from France will see their costs climb at a time they likely can’t afford it.
The U.S. first announced its intent to tariff made-in-France goods in December, following the first part of an investigation into the country’s DST, which the U.S. called “unusually burdensome.” The retaliation was slated to come in the form of tariffs as high as 100 percent, so the final ruling was considerably subdued. The DST, which France approved last summer, charges foreign businesses 3 percent on the revenues they earn for providing digital services in the country. Companies like Amazon, Google and Apple would be hardest hit.
“France’s 3 percent DST covers transactions of U.S. companies with estimated revenues of approximately $15 billion in 2020, with expected collections of approximately $450 million in taxes from U.S. companies for activities during 2020, and over $500 million for activities during 2021,” USTR said Friday. The tariffs are expected to raise a comparable amount of revenue, though consumers may end up footing the bill for it.
French cheese, butter and sparkling wine were on USTR’s original list of potential products to tariff, but none appear on the current list, which may come as a result of opposition from U.S. importers of French goods to a duty that would undoubtedly hurt American companies and workers. Friday’s list, however, simply shifts the hurt to handbag purveyors and their consumers.
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“This literally hits Americans right in the pocketbook. Taxing Americans by imposing tariffs–especially during the COVID-19 crisis–on their accessories is not the way to get the French to back away from their own tax,” Steve Lamar, president and CEO of the American Apparel & Footwear Association, told Sourcing Journal.
The 25 percent tariff, which will target 10 tariff lines of handbags, including those made from reptile leather and patent leather, comes on top of the existing 5.3 percent tariffs on these goods.
The new duties will take effect on Jan. 6, 2021, and the hope is that the U.S. and France might be able to settle their dispute before then. However, these tariffs could rekindle a trade war with Europe, which could decide to retaliate with new tariffs on American goods, particularly as the U.S. into nine other European countries’ DSTs and could react similarly to them as it has with France.
“We need to fix this issue through a multilateral approach, not one that invites countries to retaliate with more tariffs,” Lamar said. “Sadly, it looks like we are on a path to see more tit-for-tat tariffs.”
It’s a sentiment Daniel Bunn, vice president of global projects at the Tax Foundation, seconds.
“A multilateral solution to digital taxation would be superior to conflicts arising from DSTs and retaliatory tariffs,” he said in a statement last month. “Unfortunately, many countries are charting their own course on digital taxation, and the U.S. is right to identify the taxes as potential trade barriers. However, instead of erecting new barriers to trade in response to harmful tax policies, the U.S. and other countries should focus on policies that promote long-term growth.”