I have done a number of posts over the years on what U.S. trade officials mean when they talk about foreign digital taxes and regulations "discriminating" against U.S. companies. Are they talking about the intent of the measure or just its effect? On the latter, is a disparate impact on U.S. companies enough to qualify?
The latest Trump administration move on these issues makes my question irrelevant, however, as they go beyond the term "discrimination" in ways that make clear that both intent and effect are covered. A memorandum issued by Trump on Friday states:
Sec. 2. Policy. It is the policy of my Administration that where a foreign government, through its tax or regulatory structure, imposes a fine, penalty, tax, or other burden that is discriminatory, disproportionate, or designed to transfer significant funds or intellectual property from American companies to the foreign government or the foreign government’s favored domestic entities, my Administration will act, imposing tariffs and taking such other responsive actions necessary to mitigate the harm to the United States and to repair any resulting imbalance.
In taking such responsive action, my Administration shall consider:
(a) taxes imposed on United States companies by foreign governments, including those that may discriminate against United States companies;
(b) regulations imposed on United States companies by foreign governments that could inhibit the growth or intended operation of United States companies;
(c) any act, policy, or practice of a foreign government that could require a United States company to jeopardize its intellectual property; and
(d) Any other act, policy, or practice of a foreign government that serves to undermine the global competitiveness of United States companies....
Sec. 3. Agency Responsibilities.
...
(c) The Secretary of the Treasury, the Secretary of Commerce, and the United States Trade Representative shall jointly identify trade and other regulatory practices by other countries, including, without limitation, those described in section 2 of this memorandum, that discriminate against, disproportionately affect, or otherwise undermine the global competitiveness or intended operation of United States companies, in the digital economy and more generally, and recommend to me appropriate actions to counter such practices under applicable authorities. ...
Under this policy, "discriminatory" is one element to be targeted, but it is not required, as a finding that the measure has a "disproportionate" impact on American companies is enough for the U.S. government to take action. (The memo also includes a category of measures "designed to transfer significant funds or intellectual property from American companies to the foreign government or the foreign government’s favored domestic entities." I'm not totally sure what is covered by this, but it seems like it would be broader than "discriminatory" as well.)
This is a much broader and more aggressive approach than the Biden administration took, as the Biden folks seemed to want to leave plenty of room for regulation (both foreign and domestic) and were seeking to negotiate international rules to address the tax issues.
With regard to how any Trump administration fight on these issues will be undertaken, unilateral action under Section 301 certainly looks like it is going to play a prominent role. Here is the plan for digital services taxes:
(a) The United States Trade Representative shall determine, in accordance with applicable law, whether to renew investigations under section 301 of the Trade Act of 1974 (19 U.S.C. 2411) of the DSTs of France, Austria, Italy, Spain, Turkey, and the United Kingdom, which were initiated under my Administration on July 16, 2019, and June 5, 2020. If the United States Trade Representative determines to renew such investigations, he shall take all appropriate and feasible action in response to those DSTs.
(b) The United States Trade Representative shall determine, consistent with section 302(b) of the Trade Act of 1974 (19 U.S.C. 2412(b)) (section 302(b)), whether to investigate the DST of any other country that may discriminate against United States companies or burden or restrict United States commerce. He shall further determine whether to pursue a panel under the United States-Mexico-Canada Agreement on the DST imposed by Canada and whether to investigate Canada’s DST under section 302(b).
While Section 301 will be important, note the mention of the USMCA, pursuant to which the Biden administration had requested consultations with Canada. On that issue, now we will wait and see if the Trump administration decides to ask for a panel.
A White House fact sheet -- which talks about "America's sovereignty over its economy" and "overseas extortion" -- elaborates a bit on all this, and, not surprisingly, points to the Europeans as potential targets of "scrutiny":
Regulations that dictate how American companies interact with consumers in the European Union, like the Digital Markets Act and the Digital Services Act, will face scrutiny from the Administration.
And the memo states that:
The Secretary of the Treasury, the Secretary of Commerce, and the United States Trade Representative shall investigate whether any act, policy, or practice of any country in the European Union or the United Kingdom has the effect of requiring or incentivizing the use or development of United States companies’ products or services in ways that undermine freedom of speech and political engagement or otherwise moderate content, and recommend appropriate actions to counter such practices under applicable authorities.
I find it interesting to watch the Big Tech-Trump administration dynamic in action. The administration pushes Big Tech hard on a variety of domestic issues, and then fights for them on international issues. In terms of the outcome of this particular international fight, I'm not sure how much they are going to get from the Europeans on these regulatory issues, and they are probably aware of the limitations. It's possible that the fight is mainly designed to prevent the "Brussels Effect" from extending these kinds of regulations to other countries.
The fact sheet also says this: "Rather than position their own companies and workers for success, foreign governments have been taxing the success of America’s companies and workers." One thing I've wondered, given all the recent talk and action about industrial policy, is whether foreign governments will up their efforts to "position their own companies and workers for success" in the tech sector. If they did and were successful, that seems likely to escalate the existing trade tensions.
Finally, stepping back a bit and looking at the bigger trade policy picture, what we are seeing from the Trump administration are (1) broad and varied proposals for U.S. tariffs, along with (2) strong demands for foreign governments to lower their tariffs and remove their taxes and regulations, even where the latter are not intentionally discriminatory. How are the two sides of this equation going to come together? Is there a massive trade war coming, or will there be some kind of grand bargain that mostly keeps the peace? I have no answers at this point.
