The United States has threatened to impose tariffs on imports from the UK automotive industry as a direct response to the government’s plans to introduce a levy on revenue made in the UK by international tech giants.
The Digital Services Levy, as stated on the proposal details listed on Gov.uk, would seek to “introduce a new 2 per cent tax on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users“. Such measures are designed to target multinational search engines and online platforms that actively evade taxation, including Google and Netflix. The measures mirror legislation proposed in France, that have since stalled following talks between Trump and President Macron.
Steven Mnuchin, Donald Trump’s treasury secretary, described the UK proposals to tackle forms of tax avoidance by US tech giants as “discriminatory”, and threatened to retaliate with tariffs beginning with the automotive industry; an industry that contributed £18.6 billion value to the UK economy according to SMMT estimates.
In the 2018 financial year, Google paid £65 million in taxes in the United Kingdom, from a net UK revenue of £1.41 billion. This equated to approximately 4.6 per cent of its UK revenue: less than a quarter of the standard corporation tax rate of 19 per cent.
A dangerous precedent for trade
The flexing of US trade power is commonplace within the Trump administration. According to AAF December estimates, Trump’s habit of using tariffs to attempt to influence trade and policy has already affected US trade by a value of $364 billion. But the decision to now use the threat of tariffs against the United Kingdom creates concern in our national political position.
With the impending withdrawal of the United Kingdom from the European Union, the upcoming year will be characterised by how the government redefines our political and economic relationships around the world. Indeed, based on the history of the “special relationship” between the two nations and the size of its economy, the United States has already been touted to many as the key future trading partner for the United Kingdom; with the current value of UK/US trade totalling almost £200 billion. How Britain seeks to define its economic and political relationship with America will be central to its future economic prosperity.
Thus, the threat of US tariffs imposed against the United Kingdom is concerning for this potential relationship. The Digital Services Levy will act as a domestic tax when introduced in April; taxing tech giants from around the world on their UK operations and revenue. With the threat of tariffs, therefore, the US is acting not only to protect its multinational tech giants, but actively using its trade power to influence British domestic policy.
The threat of economic sanctions against the United Kingdom sets a dangerous precedent in the future US/UK relationship. As the British government’s success after Brexit will be increasingly dependant on its ability to foster strong international trading relationships, Johnson’s administration is reliant upon the relationships with countries such as the United States. Should the government delay or even cancel the Digital Services legislation, it will actively allow the United States to use the threat of tariffs to influence and control the British domestic agenda in the future.
The rising power of the Tech giants
The protection of US tech giants such as Google and Facebook by the Trump administration may set another dangerous precedent if they succeed in preventing the Digital Service levy. Not only will it prove to the US state that they can influence British domestic policy, but confirm to the global tech giants that they are free to act above the laws of the countries they operate in.
Platforms such as Facebook and Twitter, who’s influence extends far beyond socialisation, now playing a major role in political processes worldwide. Indeed, as citizens and political actors rely increasingly on technological services and platforms to source information and engage in politics, many commentators attribute the technological and social media giants as the “fifth estate” in worldwide politics.
It is also one of the most unregulated markets and forms of communication. Platforms such as Facebook allow private interests and political groups to not only harvest user data without individual consent, but to promote and target content that is either false or manipulative to the public. According to an Intuit research poll, at least 67 per cent of Adults in the United Kingdom have been subjected to fake news or misleading content, directly as a result of tech platforms such as Facebook and Twitter. In essence, tech giants, both directly and indirectly, act as influencing agents or facilitators to the shaping of public opinion and discourse.
The Digital Services levy, however, is not the first attempt of the UK government to curtail the power of multinational Tech giants. The “Online Harms” white paper, co-signed by Sajid Javid, directly expressed concerns and recommendations over the capacity of Social Media platforms to manipulate public opinion and damage democratic processes. Such a proposal, however, was effectively dropped from the government agenda prior to the December election.
Thus, there is already precedent of the influence of the tech monopoly players being able to influence the UK domestic agenda. With the pushback of the United States against the Digital Services levy, such pressure and influences only increases. Should the government delay or drop the measures, it will define not only the future trading relationship of the US and UK, but may open the floodgates of the tech sector to act with impunity in the United Kingdom.