US threatens to increase tariffs on UK car exports

Vauxhall VXR8 images

Treasury Secretary Steven Mnuchin stated Wednesday that the United States would think about imposing tariffs on cars made in the United Kingdom if the country moves forward with a tax on digital services.

Mnuchin stated at the World Economic Forum in Davos, Switzerland that the United States treats digital services taxes such as the one imposed by France, and being prepared by the United Kingdom and Italy, as being unfair to American technology firms.

President Donald Trump and French President, Emmanuel Macron, have recently agreed to a truce over the issue after the White House threatened to boost tariffs on French goods such as wine, cheese, and handbags. France has currently introduced a 3% tax on digital services.

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

UK finance minister Sajid Javid, who was also on the panel, stated he prepared to go ahead with the digital services tax in April, even as the nation looks forward to negotiating a new free trade deal with the United States after 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 said.

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

Under the truce agreed with Trump, France has agreed to postpone its tax until the end of this year while nations work toward a solution at the OECD, finance minister Bruno Le Maire stated at a press conference in Davos. In return, the United States has agreed to stop imposing retaliatory tariffs.

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

Higher tariffs on vehicles made in the United Kingdom would be another huge blow to an industry that has been already struggling because of Brexit.

Almost four years of uncertainty over exiting 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 declined 17% in November, the most recent month for which data is available.

The global automakers who have constructed factories in Britain fear that exiting the European Union will result in new barriers to trade with their biggest market. That would twist their supply chains, disrupt production and erode profit margins that are already seeing a hard time when it comes to recovery.

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

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