With UK exports already suffering a double whammy of Brexit and coronavirus restrictions, this is not news that British exporters want to hear.
The US is warning that it could place tariffs of up to 25% on a variety of goods. These include furniture, beauty products, ceramics, and clothing. The Biden administration is pressing ahead with the action that was initially implemented by his predecessor, Donald Trump.
Why is the US imposing tariffs?
The tariffs are a direct response to a tax that the UK is levying on tech firms. The tax was brought in last April, and it places a 2% levy on the revenues of online-market places like Amazon and eBay, search engines including Google and Bing, and Social Media platforms including Facebook and Twitter.
The UK imposed these taxes as a result of what the UK government considers a loophole that tech firms use known as “transfer pricing.” Using this mechanism allows the tech firms to cut the corporate taxes they pay in the UK by offsetting much of their profits against royalty and management fees charged by parent companies abroad.
The tax was calculated to bring in £300 million in the year 2020-21 and rise to £400 million in the current year.
The duties that the Biden administration is proposing are designed to generate $325 million, a figure meant to offset the amount raised by the UK tax from American tech firms.
Britain and France are both likely to be subject to the tariffs. Both countries have gone ahead with the digital services tax ahead of a wider agreement that is expected to be in place in mid-2021.
When will the tariffs begin?
There is no set date for the tariffs to begin. But the Biden administration seems set on proceeding to implement these measures. Currently, the tariffs are undergoing a consultation period in the US that is expected to last several weeks. The tariffs could be imposed as soon as this consultation ends.
There is no bluster behind this. The US argues that the tax is unreasonable, discriminatory, and carries burdensome attributes.
They have already proceeded with similar actions against other countries including India, Spain, and Austria. Although, a potential action to be taken against the EU as a whole was dropped.
A temporary tax
The British government has defended the tax, with a Government spokesman is on record as saying: “Like many countries around the world, we want to make sure that tech firms pay their fair share of tax. Our digital services tax is reasonable, proportionate, and non-discriminatory.”
They also went on to say: “It’s also temporary. We’re working positively with the US and other international partners to find a global solution to this problem and will remove the digital services tax when that is in place.”
With the tax seen as temporary, the question must be asked. Is it worth it?
The new US administration has already shown signs that they want a better business relationship with the UK than it had under Donald Trump. Joe Biden was in office for less than a month when he suspended tariffs on goods like malt whisky that were imposed by Donald Trump in response to subsidies paid to Airbus.
With an agreement expected to be reached later this year on an internationally accepted version of the tax, British exports already suffering, and a new and more approachable administration in place, this seems like a very short-sighted action taken by the British Government.