The US has threatened to place tariffs on French products including handbags, unless an agreement is reached © REUTERS

The US has announced it will impose tariffs of 25 per cent on $1.3bn worth of French goods in 180 days if Paris presses ahead with a digital services tax, in a move likely to escalate transatlantic trade tensions.

The US trade representative’s office said it would not immediately levy tariffs on the items — which include handbags, soaps and make-up — to allow more time for talks on a multilateral solution through the Paris-based OECD.

The threat escalates longstanding tensions between Washington and Paris over France’s digital services tax plans, which the US argues unfairly discriminates against American technology companies.

Last December, the US published a broader list of items, including cheese and wine, on which it said it would place tariffs of up to 100 per cent, following an investigation into the French tax.

However, the two sides agreed to pause their battle in January and wait for talks on a multilateral taxation framework overseen by the OECD to play out over the course of the year.

As part of that pause, France agreed to stop collecting its digital tax, while the US suspended planned tariffs on French goods and dropped its insistence that any international taxation agreement should be optional.

Washington has grown increasingly anxious that the largest US technology companies could face higher tax bills abroad as governments seek to boost revenues in the midst of the coronavirus pandemic.

Last month, the Trump administration announced an investigation into a number of countries that are adopting digital services taxes, including the UK, Italy, Brazil, Indonesia and the EU, which could lead to punitive tariffs by Washington and exacerbate global trade tensions.

US trade officials are launching the probe as a section 301 investigation, the same process used in its trade dispute with China. It can result in the imposition of punitive tariffs on countries deemed to be engaging in unfair trade practices damaging to American interests.

The US also withdrew in June from talks with European countries over plans for a new global tax framework under the auspices of the OECD, with Steven Mnuchin, the US Treasury secretary, telling European finance ministers that talks had reached an “impasse”.

Friday’s tariff announcement drew bipartisan support from the Senate finance committee.

In a statement, Chuck Grassley, the committee’s Republican chairman, and Ron Wyden, its top Democrat, said that while retaliatory tariffs “aren’t ideal . . . the French government’s refusal to back down from its unilateral imposition of unfair and punitive taxes on US companies leaves our government with no choice”.

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