Boris Johnson is risking a post-Brexit rift with President Trump as he prepares to clash with the United States over tax, trade and foreign affairs.
The prime minister is planning to push ahead with a levy on large technology companies despite the threat of a trade war with Washington.
Downing Street says that it will introduce a 2 per cent sales duty on companies such as Facebook and Google from April amid concerns that they are “undermining trust and confidence in our international system”.
Steven Mnuchin, the US Treasury secretary, said at the World Economic Forum in Davos that Mr Trump intended to hit back with tariffs on Britain’s car industry if the digital services tax went ahead. Downing Street warned that this “would harm businesses and consumers on both sides of the Atlantic”.
Row over Huawei 5G plan
Relations between London and Washington will become more fraught if, as is expected, the government gives the green light to Huawei building “non-core” parts of Britain’s 5G network at a meeting of the National Security Council next week. The US has said that this would be “madness” and threatened to limit intelligence-sharing with Britain if it goes ahead.
There are also tensions between the US and Britain over the Iran nuclear deal. This month Mr Trump criticised Britain, France and Germany for their continued support of the accord. They subsequently triggered a dispute mechanism in the deal after violations by Iran, with Mr Johnson saying that it should be replaced by a “Trump deal”.
Iran nuclear tensions grow
The row over plans for a digital services tax erupted as Sajid Javid, the chancellor, shared a platform with Mr Mnuchin in Davos. Mr Javid made clear that Britain would impose the tax, which will raise £1.5 billion over four years. “It’s important — as we said at the time when we first introduced it to parliament and legislated for it — it is a proportionate tax,” he said. Mr Mnuchin argued that it was discriminatory because it would mainly hit US companies. “If people want to just arbitrarily put taxes on our digital companies, we will consider arbitrarily putting taxes on car companies,” he warned.
The automotive industry is at the heart of the British economy, with manufacturers from Jaguar Land Rover to Honda exporting 81 per cent of what they make. Almost a fifth of the 1.5 million cars sold abroad by Britain each year go to the US.
The prime minister’s spokesman said that the government’s “strong preference” was for an internationally agreed tax, but it was taking “too long to address”. France has backed down over a similar tax, agreeing to delay until the end of the year if the US shelves plans to impose tariffs on wine and cheese.
Mr Javid also said yesterday that the government’s “first priority” was securing a trade deal with the EU rather than the US. His comments appeared to go further than No 10, which has said that talks will be conducted in parallel. Mr Mnuchin responded: “We are very much looking forward to a new trade agreement this year with the UK — it’s a big priority for us.”
The US was “a little disappointed”
He joked that the US was “a little disappointed” that Britain would prioritise talks with the EU. “We thought we’d go first. The [EU] might be a little harder to deal with than we are,” he added.
A government source said that Mr Javid was referring to there being a “hard” deadline of securing a trade deal with the EU by December 31. Mr Trump said yesterday that Mr Johnson would “come out great” from trade negotiations with Brussels, adding that the prime minister has “a lot of guts”.
Other senior figures in Davos advised Mr Javid to wait for the global deal being worked out by the Organisation for Economic Co-operation and Development. Kristalina Georgieva, managing director of the International Monetary Fund, said: “There is a process under way and it is an encouraging process. But do it properly, do it so it is done within the multilateral context rather than countries popping up with taxes here, there and everywhere.”
The former chancellor George Osborne had predicted that the Treasury would delay the tax. “It would certainly be a very brave British government that walks into a trade war with the United States at the very moment [that] the centre point of its economic policy is to strike a trade deal with the US,” he told BBC Radio 4’s Today.
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Steven Swinford, Deputy Political Editor | Philip Aldrick | Callum Jones