MNI POLICY: UK Faces Trump Trade Fight As Brexit Takes Hold

--Mnuchin and Javid Meet This Weekend After Sparring On Digital Tax

By Brooke Migdon

     WASHINGTON (MNI) - Boris Johnson's government risks losing a U.S. trade

pact just as Brexit advances by taking stands on digital taxes and buying Huawei

technology that President Donald Trump opposes, former officials told MNI.

     Treasury Secretary Steven Mnuchin is scheduled to meet with his U.K.

counterpart Sajid Javid in London this weekend to discuss moves on Huawei. The

U.S. has threatened to cut the U.K. out of an intelligence-sharing partnership

if the Chinese company helps build a 5G network, in line with current American

restrictions on domestic companies.

     Mnuchin and Javid sparred Wednesday during a panel at the World Economic

Forum in Davos over the U.K.'s proposed tax on digital services, shortly after

the U.S. got France to back away from a similar measure. Mnuchin suggested his

administration could respond with automobile tariffs, reviving a threat Trump

has made in the past against the EU, Japan, Mexico and Canada.

     "The United States is playing hardball with all the other countries, I

don't know why the United Kingdom thinks they're going to be an exception," said

Desmond Lachman, a former IMF deputy director who's now with the American

Enterprise Institute. "He's threatened to put tariffs on their cars so my

expectation is the U.K. will have to back down."

     --FRENCH TRUCE

     The U.S. says digital taxes discriminate against American companies, and

earlier this week Trump used a phone call with French President Emmanuel Macron

to win a suspension. That agreement came after a threatened 100% tariff on

imported French goods totaling USD2.4 billion.

     The issue isn't going away. Countries seeking a solution through the OECD

argue internet companies with some of the world's highest market values should

pay taxes like other enterprises. The U.K. has said its proposed tax will go

ahead as a stopgap until the OECD solution is found. 

     Trump has shown he's eager to take advantage of the vague national security

power known as Section 232 for leverage, said Jeremie Cohen-Setton, a former

U.K. Treasury economist and current research fellow at the Peterson Institute

for International Economics.

     "You can drop an investigation and start a new one if you want,"

Cohen-Setton said. "If the president wants to keep threatening countries with

tariffs, he can do it." 

     --ANNOY TRUMP

     The weekend meeting in London may be the last chance before the U.K. is

expected to make a decision next week concerning Huawei and the 5G network.

     "The U.K. can't afford to side with the Chinese against the United States,"

Lachman said. "They can't afford to annoy Trump on Huawei and the digital tax

and then expect him to be very friendly to them in a negotiation."

--MNI Washington Bureau; +1 202 371 2121; email: brooke.migdon@marketnews.com

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