France and the United States, in addition to their strong political relations, have deep economic relations that are mutually beneficial. These trade and investment flows support growth, employment and innovation in both countries. Trade tensions began with a law passed in France in July 2019. Under this law, the French government levied a 3% tax on revenue generated by digital services in France. The tax, dated January 1, 2019, applied to all businesses with sales of more than 25 million euros ($27.9 million) in France and 750 million euros ($845 million) worldwide.  In addition, French President Emmanuel Macron has been actively committed in recent months to encouraging other EU member states to speed up the regulation of digital taxation. The move has provoked counter-reactions from many large U.S. companies that feel unfairly targeted by the law and President Macron`s efforts. The new threat of tariffs in the United States has only exacerbated these tensions: France and the European Union have pledged to take retaliatory measures against the United States.  French Finance Minister Bruno Le Maire said the threats of tariffs were “unacceptable” and that France was ready to go to the World Trade Organization to challenge tariffs in court if necessary.  It remains to be seen whether the damage to trade relations between the EU and the United States (including trade relations between France and the United States) can be repaired.
Regardless of the entry into force of the proposed 100% tariffs, the potential deterrent effects that these threats could have on Franco-American trade are of great concern. 1/ Trade in goods between the two countries reached $79 billion in 2018, up 2.6% from 20171, according to Eurostat. The most recent data available for goods and services cover 2017, with a total trade volume of $139 billion, including $77 billion for goods and $62 billion for services. In 2018, France was the fourth largest export destination and the third largest trading partner of the United States among European countries. France`s trade surplus on goods reached $12 billion in 2018, almost double what it was in 2017, according to Eurostat. This increase was mainly due to an increase in French exports of chemicals and pharmaceuticals (plus $1.4 billion, mainly medicines) as well as machinery and transport equipment (plus $3 billion, mainly ships and boats). In a previous meeting with Ursula von der Leyen, the new president of the European Commission, Trump congratulated von der Leyen as a tough negotiator. He acknowledged that governments have been talking about a trade agreement for some time, “and I hope we can do something.” Governments have also made little progress in negotiating a trade agreement for which they have announced plans for 2018 for the first time.
The Trump administration has insisted that agriculture be included in the agreement, while the European government has said it has no mandate to negotiate on the issue. While the proposed tariffs may not come into force, the Trump administration`s decisive announcement calls for greater and growing hostility to trade between Europe and the United States – a stark contrast to party positions a few years ago.