Speaking in front of the House Ways and Means Committee on Wednesday, U.S. Trade Representative Robert Lighthizer said he believed the proposed French digital tax is “a tax that’s geared toward hitting American companies disproportionately.” Lighthizer also noted that he believes President Trump “would respond very strongly” should France or the European Union follow through on their proposals for digital services taxes. 

This latest development comes as world leaders prepare to gather in Japan next week for the G20 Summit. The development of a global consensus on the taxation of the digital economy is expected to be a hotly debated issue. Some countries, such as the United Kingdom, have backed off their plans to impose their own digital services tax, opting instead to wait to see what develops at the multinational level. 

The French proposal is a 3% tax on the revenues of companies with more than 750 million Euros in worldwide revenue. This is a short list of only about 30 companies, the vast majority of which are American companies such as Facebook and Google’s parent company Alphabet Inc. 

If enacted, a digital tax from France or the European Union could lead to retaliatory measures form the United States. If determined to be discriminatory, the U.S. could challenge the tax at the World Trade Organization or start issue tariffs under Section 301 of the U.S. Trade Act. A never-used provision of the tax code, Section 891, could even allow the U.S. to increase taxes on U.S. subsidiaries of French companies.

Instead of going alone, France and the EU should wait for talks to play out at the multinational level. The Trump administration has been engaging with the OECD to develop international rules do not unfairly target American companies. Should France choose to move forward, it will only be the beginning of a lengthy fight between two allies.