Macron’s retreat on digital tax is a triumph for Trump’s unorthodox diplomacy

It was apparently a “great” telephone call, but was it “perfect”?

France’s President, Emmanuel Macron, disclosed on Monday that he and his US opposite number, Donald Trump, had spoken at length about worsening trade relations between America and Europe and had agreed a year-long truce, or ceasefire, to allow negotiators on both sides to come to a deal aimed at precluding out-and-out war.

“Great discussion with @realDonaldTrump on digital tax,” Macron tweeted. “We will work together on a good agreement to avoid tariff escalation.”

Trump’s tweet in response was unusually terse. “Excellent!” was all he said. But then, in fairness, he is in the middle of impeachment proceedings and has much else on his mind.

The general tenor of the President’s views on trade were revealed in a tweet he posted seven hours prior to his talk with Macron, which I quote in its entirety: “USA! USA! USA!”

Further evidence was provided in yet another White House tweet that ran in full:

“PROMISES MADE, PROMISES KEPT on TRADE: @SpeakerPelosi spent $5k on Gold Pens to sign an Impeachment Hoax, @real DonaldTrump used a $1.99 Sharpie Pen to sign a $200B China Trade Deal, adding to 7M JOBS the @WhiteHouse created in 3 years that @BarackObama didn’t!”

Not the usual stuff of diplomatic exchange. Viscount Castlereagh would surely have reached for his quill. Yet beneath the swagger and the preening there lies a central truth. Trump has made significant progress on trade with Beijing and he may also – assuming the Senate tosses the Democrats’ articles of impeachment – succeed in winning concessions not only from Macron, but from the European Commission on behalf of all 27 members (less the UK) of the European Union.

Not perfect then, but definitely a step forward. And at Davos today, where the made what was in effect a stump speech, Trump was keen to show that when it comes to trade and the economy, he is winning.

Macron’s pitch, up until this week, had been to lock horns with the US Treasury and the Department of Commerce by threatening to impose a 3 per cent tax on revenues from digital services earned in France by US corporations such as Google, Amazon and Facebook.

Trump regards such a tax as “extra-territorial”. He believes that the only country due tax from Big Tech is the US. Responding to Macron’s proposal, he announced tariffs of up to 100 per cent on a range of French products, from wine and cheese, to porcelain, cookware and handbags.

Handbags!

Now the two sides have drawn back, with Macron letting it be known that he is content to wait until the OECD – representing the rest of the world – and the US come to an agreement on the issue of out-of-area digital taxation.

Coming as it does on the back of Trump’s partial rapprochement with China’s President Xi in which the US and China agreed to step back from the brink of the mother of all trade wars, there is reason to hope that, behind his rather obvious bluster, the hard-pressed American leader retains some memory of the art of the deal.

If so, Trump’s newly forged Sharpie détente may be extended to Europe, allowing the Commission to engage with both the Commerce Department in Washington and the Paris-based OECD to negotiate an armistice acceptable to all sides.

While the American and French Presidents have stolen the Twitter headlines, officials behind the scenes have been equally busy. France’s finance minister, Bruno Le Maire, and the US Treasury Secretary Steve Mnuchin are keenly aware of the damage that could be done if America and Europe continued their drift towards open conflict. Each holds firmly to their beliefs, but neither is willing to sacrifice 75 years of good relations on the altar of mutually assured destruction.

Le Maire is reported to have told Mnuchin that he was ready to continue negotiating so long as Washington held back on its hit list of tariffs. Now Macron has told Trump that he will suspend his digital tax while talks resume on all of the outstanding issues.

The assumption has to be that some form of compromise will be reached in which France – or more likely the EU, with OECD backing – will accept a reduced rate of tax while the US imposes only notional tariffs on French luxury goods.

There are, of course, other matters to be resolved. Germany is concerned about a possible hike in the level of tariffs on car imports and white goods into the US. France is anxious over restrictions on Airbus sales. Italy, Spain, Belgium, the Netherlands and the rest of the 27 have their own shopping lists. For its part, America wishes to ensure that both Big Farm and Big Pharma secure better access in future and that its tech giants are treated with the respect that is their due.

As Trump sees it, threats are the way forward. Threats work. Mexico came back to the negotiating table after he threw out the pre-existing Nafta deal. Then China, a much tougher customer, showed itself at least willing to compromise. Agreement with Europe – the French, he will have learned, do have a word for rapprochement – would give the President a clean sweep of settlements, providing useful noises-off amid the impeachment drama.

What all of this means for the UK post-Brexit is hard to say. Discussions on a future trade deal with the EU won’t, apparently, start until February and there is as yet no timetable for talks with the US. Prime Minister Boris Johnson, may find that he has bitten off more than he can chew if he insists on keeping to his December 31 deadline for a settlement with Brussels.

On the other hand, it is possible that Trump – who at Davos described Johnson as Britain’s “wonderful new prime minister” – will outline the guts of a deal that, while bending the PM’s red lines on such tricky issues as chlorinated chicken and access to the NHS, doesn’t actually break them and could result in Britain becoming de facto a member of Nafta.

In that event, Johnson could afford to go in hard on Europe and wait to see how the cards fall. A good start might be a carefully structured phone call to the Oval Office. As President Macron has shown, a little diplomacy and a generous measure of soft soap can go a long way with the Free World’s embattled leader.