The Digital Tax Dispute Between the United States and France: A Legal and Economic Analysis of Renewed Tensions and Tariff Risks

By Alfredo Baraldi – June 28, 2025

Premise

This analysis was conducted to clarify the context and veracity of news regarding the reopening of trade tensions between the United States and Europe concerning the taxation of digital services, with particular attention to the French digital tax and potential U.S. retaliatory tariffs on European luxury goods.

The primary motivation for this analysis is the decisive influence that the imposition of tariffs has on stock prices, especially for the companies involved. Tariffs, such as the proposed 25% on European luxury goods, act as a significant additional cost, reducing profit margins for importers and exporters and decreasing product demand due to increased prices for end consumers.

This economic impact is immediately reflected in stock markets:

Luxury Sector: European luxury sector companies, such as those producing cosmetics and handbags (specific examples cited in the 2020 list), would suffer a decline in sales and profitability. Investors would react negatively to these prospects, leading to a devaluation of these companies’ stock prices. Their exposure to the U.S. market is a key factor in their valuation.

U.S. Companies: U.S. companies that import European goods or would be affected by possible EU countermeasures (e.g., agricultural products, spirits) would also see their stock prices negatively influenced due to loss of access to key markets and increased production or distribution costs.

Market Uncertainty: The exacerbation of a trade war between two of the world’s largest economies creates generalized market uncertainty. Investors tend to withdraw from exposed sectors or demand a higher risk premium, which can lead to volatility and an overall decline in stock indices.

In summary, the analysis is crucial because tariffs are not just a matter of fiscal policy, but a direct and powerful factor that alters trade flows, operating costs, and profit expectations, thus exerting downward pressure on the stock prices of involved companies and, potentially, the entire market.

I. Executive Summary

This report analyzes the veracity and context of news that the United States Trade Representative (USTR) announced a review of tariffs on European luxury goods in response to the French digital tax. The main conclusion is that the news is substantially true but requires critical context for proper interpretation. A Presidential Memorandum issued on February 21, 2025, effectively tasked the USTR with examining and considering reopening its Section 301 investigation into the Digital Services Tax (DST) of France and other European countries.¹ This action explicitly reopens the possibility of imposing retaliatory tariffs, which in the past have specifically targeted French luxury goods.⁵

However, the premise of the user’s question contains two fundamental inaccuracies that must be corrected. First, the French DST is not “new”; it was enacted in 2019.⁷ The recent development that has helped fuel tension is a legislative proposal, which emerged in late 2024, to increase the tax rate from 3% to 5%.¹⁰ Second, the USTR’s action is not a simple “review” of existing tariffs, but a potential reopening of a previously closed investigation, which could lead to the imposition of new tariffs.²

The main driver of this renewed conflict is twofold: on one hand, the prolonged stalemate in multilateral tax negotiations at the Organisation for Economic Co-operation and Development (OECD), known as “Pillar One”; on the other, a significant change in U.S. trade policy under a new administration, which favors a more unilateral and coercive approach.¹

For economic operators, particularly in the luxury, import/export, and technology sectors, the strategic conclusion is unequivocal: the risk of U.S. tariffs, potentially 25%, on European luxury goods, with particular emphasis on France, is no longer a dormant threat. It has been actively revived, making an immediate and thorough strategic review necessary for affected industries to assess exposures and plan adequate mitigation measures.

II. The Genesis of the Conflict: France’s Unilateral Digital Services Tax (DST)

The root of the transatlantic trade controversy lies in France’s decision to act unilaterally to tax the revenues of large digital companies. This move, while motivated by legitimate concerns about taxing the digital economy, was perceived by the United States as discriminatory action targeting its technology companies, triggering a cycle of investigations and retaliatory threats.

Motivations and Implementation

France formally introduced its Digital Services Tax (Taxe sur les Services Numériques, or TSN), commonly known as the “GAFA tax” (an acronym for Google, Apple, Facebook, Amazon), in July 2019. One of its most controversial features was its retroactive application from January 1, 2019, with the first payments due in October of the same year.⁷ From the beginning, the French government framed the DST as a temporary measure, a bridge solution pending a global and coordinated agreement on digital taxation under the OECD aegis.⁸ The stated objective was to address the perceived deep misalignment between where digital companies create value (i.e., where their users are located) and where they pay taxes, a central problem in the globalized and digitalized economy of the 21st century.¹⁴

The underlying logic was that digital business models, based on data and user interactions, generate significant profits in jurisdictions where companies have minimal or no physical presence, thus evading traditional tax systems based on physical presence. The DST aimed to capture a portion of this value generated on French soil.

Technical Mechanisms of the French DST

To fully understand the U.S. reaction, it is essential to analyze the technical structure of the law, which reveals a carefully calibrated architecture.

Tax Rate: The law imposes a 3% rate on gross revenues (excluding VAT) derived from specific digital services provided in France.⁸

Revenue Thresholds: The tax was designed to target exclusively the largest multinational companies. It applies only to companies that meet two cumulative thresholds: annual global revenues exceeding 750 million euros and revenues generated in France from taxable services exceeding 25 million euros.⁸ These high thresholds effectively exclude startups, small and medium enterprises, and most European companies.

Taxable Services: The legislation does not tax all digital services but focuses on three specific categories:

• The provision of a digital interface that enables users to connect and interact with other users, including for the delivery of goods or services directly between them (e.g., online marketplaces).⁸
• Targeted advertising services provided to advertisers based on user data (e.g., social media or search engine advertising).⁸
• The sale of data collected from users for advertising purposes.⁹

Strategic Exclusions: Of fundamental importance are the services that the law explicitly excludes from its scope. These include direct online sales of goods and services (traditional e-commerce), the provision of digital content (such as video or music streaming services), communication services, and regulated financial services.⁸ These exclusions cover sectors where French and European companies have a more significant market presence.

The 2024 Proposal to Increase the Rate

In late 2024, the conflict dynamics underwent new acceleration. During the discussion of the 2025 budget law, an amendment (I-735) was presented to the Finance Committee of the French National Assembly to increase the DST rate from 3% to 5%.¹⁰ Although an earlier proposal for an increase to 6% had been rejected, the 5% amendment remained under discussion, with the stated goal of generating approximately 500 million euros in additional revenue for the state budget.¹⁴

The motivations behind this proposal were twofold. On one hand, a pressing fiscal need for France to address a budget deficit exceeding EU limits.¹⁰ On the other, growing frustration with the slowness and uncertainty surrounding the OECD’s multilateral negotiations on Pillar One, which were supposed to replace national DSTs.¹⁰ This move, however, was seen by the United States not only as further provocation but also as a violation of the spirit of the 2021 truce.

Comparative Analysis of Digital Services Taxes in Europe

France was not the only European nation to pursue the path of unilateral digital taxation. Several other countries have implemented similar measures, creating a fragmented landscape that has reinforced the U.S. perception of a coordinated attack on its commercial interests.

Country	Status	Rate	Global Revenue Threshold	National Revenue Threshold	Taxed Services
France	Implemented	3%	€750 million	€25 million	Intermediation, Targeted advertising
Italy	Implemented	3%	€750 million	€5.5 million	Intermediation, Advertising, User data
Spain	Implemented	3%	€750 million	€3 million	Intermediation, Advertising, User data
Austria	Implemented	5%	€750 million	€25 million	Online advertising
United Kingdom	Implemented	2%	£500 million	£25 million	Search engines, Social media, Marketplaces
Turkey	Implemented	7.5%	€750 million	TRY 20 million	Advertising, Intermediation

Source: Data compiled from⁸

Analysis: “Discriminatory by Design”

The architecture of the French DST is at the heart of the U.S. argument that the tax is inherently discriminatory. Although the law is formally neutral and does not explicitly mention U.S. companies, its practical structure makes it so. This concept of “de facto discrimination” is the legal foundation of the investigation and potential retaliation under Section 301 of U.S. trade law.

The reasoning develops through a clear logical sequence. First, the imposition of an extremely high global revenue threshold of 750 million euros ensures that only the largest multinational enterprises (MNEs) fall within its scope.⁸ This immediately narrows the pool of taxpayers to a limited number of global actors. Second, the selection of taxable services — digital intermediation and targeted advertising based on data — focuses on market areas where U.S. technology companies hold a dominant leadership position.⁷ Finally, and crucially, the law explicitly excludes sectors such as direct e-commerce, content streaming, and financial services, where stronger European and French competitors exist.⁸

The combination of these three elements — high thresholds, targeting of specific services, and strategic exclusions — creates an effect whereby the tax, while written in neutral terms, disproportionately and almost exclusively affects a small group of companies, most of which are based in the United States. This is the basis on which the USTR concluded that the DST is “unreasonable or discriminatory and burdens or restricts U.S. commerce,” the legal formula that authorizes retaliatory action under Section 301.¹⁴ The U.S. Chamber of Commerce explicitly articulated this argument, maintaining that the tax violates France’s commitments within the World Trade Organization (WTO).¹⁴

This choice of a unilateral approach, perceived as deliberately targeted, established a confrontational precedent from the beginning. Instead of pursuing a negotiated rules-based solution, France opted for a power measure, inevitably inviting a power-based response from the United States and transforming the dispute from a technical fiscal policy issue to a strategic trade confrontation.

III. The Section 301 Investigation: A Chronology of U.S. Action (2019-2024)

The U.S. response to the French DST developed through a multi-year process defined by Section 301 of the Trade Act of 1974, an instrument that grants the USTR authority to investigate and respond to foreign trade practices deemed unfair. The chronology of this process reveals a cycle of escalation, diplomatic de-escalation, and a precarious truce that laid the groundwork for the renewed conflict in 2025.

Phase 1: Investigation and Initial Threats (2019-2020)

Washington’s reaction was immediate and decisive.

July 2019: Days after the enactment of the French law, the USTR, then under the Trump administration, formally initiated a Section 301 investigation.⁷ The notice initiating the investigation invited public comments on the nature of the tax, particularly whether it discriminated against U.S. companies and whether it deviated from international tax norms.¹⁸

December 2019: The USTR published its investigation report, reaching the formal conclusion that the French DST was indeed discriminatory and burdened U.S. commerce.¹⁸ Based on this determination, the USTR proposed the imposition of retaliatory tariffs up to 100% on a list of French products, including champagne, cheeses, and luxury goods.

July 2020: After a period of public comments and hearings, the USTR announced its final action: additional tariffs of 25% on a specific list of French products, with an estimated trade value of $1.3 billion.⁵ The targeted products included emblematic items from the French luxury industry, such as cosmetics and handbags. However, in a strategic move aimed at leaving the door open for diplomacy, the USTR simultaneously suspended the application of such tariffs for a period of up to 180 days, setting the deadline for January 6, 2021.¹⁸

Phase 2: Expanding the Scope and Strategic Suspension (2021)

The beginning of 2021 saw a change in U.S. tactics, coinciding with the presidential transition.

January 2021: Days before the deadline, the outgoing Trump administration announced the indefinite suspension of tariff action against France.²⁰ The official motivation was to allow for a coordinated and unified response, given that similar investigations were underway on DSTs adopted or under consideration by ten other jurisdictions, including Austria, Italy, Spain, the United Kingdom, and India.²⁰ This move transformed the dispute from a bilateral conflict with France to a multilateral confrontation with all countries pursuing similar policies.

June 2021: The new Biden administration, under the leadership of Trade Representative Katherine Tai, concluded its investigations on six countries (Austria, India, Italy, Spain, Turkey, and the United Kingdom). The USTR confirmed the determination that their DSTs were discriminatory and announced the imposition of 25% tariffs on goods from these countries.⁶ However, in a key diplomatic gesture, it immediately suspended the application of these tariffs for up to 180 days. The stated objective of this suspension was to “provide additional time to complete ongoing multilateral negotiations on international taxation at the OECD and in the G20 process.”²¹ This action signaled a change in approach: using the threat of tariffs not as immediate punishment, but as leverage to push toward a negotiated solution at the global level.

Phase 3: The OECD-Mediated Truce and Closure of Actions (Late 2021)

The Biden administration’s diplomatic strategy bore fruit in the fall of 2021, leading to a truce.

October 2021: A significant breakthrough was announced. The United States, along with Austria, France, Italy, Spain, and the United Kingdom, released a Joint Statement outlining a political compromise.² The agreement provided for a complex transitional mechanism:

• European countries committed to ensuring that DST tax liabilities accrued by U.S. companies during the transitional period would be creditable against future income taxes owed under the new OECD Pillar One framework, once it came into effect.
• In exchange, the United States committed to ending the Section 301 tariff actions that had been announced but suspended.²³

November 2021: In line with the agreement, the USTR formally terminated the Section 301 actions against Austria, France, Italy, Spain, and the United Kingdom, removing the imminent threat of tariffs.² Similar agreements and consequent cessation of actions followed for Turkey and India in subsequent months.²

Table: Chronology of the U.S.-France Digital Tax Dispute (2019-2025)

Date	Key Event	U.S. Action	France/EU Action	OECD Context
July 2019	France enacts DST	USTR initiates Section 301 investigation	Law enters into force with retroactive effect	Negotiations for global solution ongoing
December 2019	USTR publishes report	Determines DST is discriminatory, proposes tariffs	France maintains tax	Negotiations continue
July 2020	USTR announces action	Imposes 25% tariffs on $1.3B goods, but suspends application for 180 days	France continues to collect tax	Goal is agreement by end of 2020
January 2021	Suspension deadline	Indefinitely suspends tariffs against France to coordinate with other investigations	France delays 2020 collection	Pillar One/Two negotiations take shape
June 2021	USTR concludes other investigations	Announces 25% tariffs against 6 countries (including IT, ES, UK), but immediately suspends them for 180 days	Several EU countries have active DSTs	High-level political agreement on two-pillar framework
October 2021	Transitional political agreement	Reaches agreement with 5 EU countries to end dispute	EU countries agree to make DST creditable against future Pillar One taxes	136 jurisdictions approve two-pillar solution
November 2021	End of actions	USTR formally terminates Section 301 actions against France, IT, ES, UK, AT	EU countries commit to withdraw DSTs upon Pillar One entry into force	Agreement depends on Pillar One implementation
Late 2024	France considers increase	–	National Assembly discusses increasing DST rate to 5%	Pillar One implementation deadlines missed
February 2025	Conflict exacerbation	Presidential Memorandum orders USTR to consider reopening Section 301 investigations	EU expresses concern about unilateral actions	Pillar One negotiations effectively stalled

Source: Data compiled from²

Analysis: The Fragility of a Contingent Agreement

A thorough analysis of the 2021 truce reveals that it was not a resolution of the underlying disagreement, but rather a temporary and conditional ceasefire. Its stability was entirely subordinate to the success and timely implementation of the OECD’s Pillar One. It was, in essence, a bet on multilateralism.

The reasoning behind this conclusion is clear. First, the United States never conceded the legitimacy of DSTs. They simply agreed to end their retaliatory actions in exchange for a negotiated exit path.²³ Second, European countries did not agree to immediately repeal their DSTs. They committed to doing so only after Pillar One came into effect.²³ The entire agreement was conceived as a bridge to a future multilateral solution.

This structure inherently contained the seeds of its own destruction. If the bridge led nowhere — that is, if Pillar One failed — both parties would be free to return to their original positions. The truce did not resolve the conflict; it simply paused it, tying its fate to an external and complex process.

Consequently, this architecture created a high-stakes gamble. By linking the cessation of trade hostilities directly to the success of a negotiation involving over 140 countries, the parties effectively made the transatlantic trade relationship hostage to the OECD process. The subsequent failure of that process made a return to conflict almost inevitable, as the fundamental condition on which peace was based — the imminent arrival of a global solution — did not materialize.

IV. The OECD Framework: A Multilateral Solution on Shaky Ground

The key to understanding the renewed conflict in 2025 lies in the failure of the multilateral mechanism designed to resolve it. The OECD’s two-pillar agreement, particularly Pillar One, had been hailed as the global solution that would make unilateral digital taxes obsolete. Its stalling has created a vacuum that has returned nations to their starting positions, based on unilateral measures.

The Two-Pillar Solution

For years, the OECD and G20, through the Inclusive Framework on BEPS (Base Erosion and Profit Shifting), worked on a comprehensive reform of international tax rules to address the challenges posed by digitalization and globalization. In October 2021, this effort culminated in a political agreement on a two-pillar solution.²⁴

Pillar One: This pillar is the fulcrum of the DST dispute. Its objective is to modify profit allocation and tax nexus rules to reallocate a portion of the profits of the largest and most profitable multinational enterprises (MNEs) to market jurisdictions, i.e., where their customers and users are located, regardless of the company’s physical presence.²⁵ In essence, Pillar One was designed to be the multilateral and standardized substitute for unilateral DSTs. The 2021 agreement provided that, with the implementation of Pillar One, all countries would commit to withdrawing their existing DSTs and not introducing new ones.²⁴

Pillar Two: This pillar aims to establish a global minimum corporate tax of 15% through the so-called GloBE (Global Anti-Base Erosion) rules.²⁶ While politically significant, Pillar Two has seen faster progress and greater adoption (including at the EU level), but it does not address the central question of taxation rights that gave rise to the DST conflict.

The Stalling of Pillar One

While Pillar Two advanced, the implementation of Pillar One proved much more complex and controversial, to the point of stalling.

The implementation of Pillar One depends on the drafting, signing, and ratification of a Multilateral Convention (MLC), a complex international treaty that would modify thousands of existing bilateral tax treaties.²⁶ The process encountered insurmountable obstacles. Deadlines were repeatedly missed. An initial target of entry into force in 2025 became unrealistic.²⁷ Subsequent deadlines to finalize the MLC text by March 2024 and to open it for signature by June 2024 were also missed.¹²

By early 2025, negotiations on the MLC text had not yet concluded, and the convention had not been opened for signature.²⁷ The coup de grâce came with the change of administration in the United States and the consequent withdrawal from the negotiation process, which effectively paralyzed the entire effort, given the impossibility of implementing such a reform without the participation of the world’s largest economy.¹³

The Expiration of the “Standstill” Clause

The October 2021 truce agreement contained a crucial clause, known as the “standstill” clause. Countries had committed not to impose new DSTs from October 8, 2021, until the earlier of December 31, 2023, and the entry into force of the MLC.²⁴ This deadline was subsequently extended to June 30, 2024.¹²

Passing this date without an MLC in force had fundamental legal and political importance. It legally freed countries, including France, from their commitment not to modify or introduce new DSTs. This created the window of opportunity for French legislators to propose increasing the rate from 3% to 5% in late 2024, an action that would have been considered a violation of the agreement if undertaken before the deadline.

Analysis: The Vacuum of Multilateralism

The failure of Pillar One was not a simple technical delay; it created what can be defined as a “vacuum of multilateralism.” The mechanism that had been designed to prevent unilateral trade wars failed, leaving no alternative path for conflict resolution other than a return to unilateral measures and power politics.

The logical path leading to this conclusion is direct. The 2021 truce had been built on the fundamental assumption that the OECD would provide a viable and binding alternative to DSTs.²³ This assumption proved incorrect. The OECD process, weighed down by technical complexities, political divergences between countries, and conflicting national interests, failed to meet its own deadlines.¹² The abandonment of the negotiating table by the United States, an indispensable actor, dealt the death blow to the process.¹³

Without a multilateral framework that could fill the vacuum, the parties returned to the tools they knew and controlled. Countries like France, frustrated by the lack of progress and pressed by budget needs, returned to considering their only available tool: the national DST, even proposing its strengthening.¹⁰ Similarly, the United States, seeing the failure of the diplomatic route, returned to its preferred unilateral tool: the threat of trade retaliation under Section 301.

The long-term implication of this failure is profound and concerning. It has severely damaged the OECD’s credibility as an effective forum for resolving important international tax disputes. It has sent a powerful signal to governments around the world: long and laborious multilateral processes based on consensus may be less effective than direct and decisive unilateral action. This precedent risks encouraging more disputes of this type in the future, not only in the tax field but also in other areas of global economic policy, further eroding the rules-based trade order.

V. The 2025 Escalation: A New U.S. Administration Reopens the Investigation

The core of the events that triggered the recent wave of concern and the user’s question lies in the actions taken by the new U.S. administration in early 2025. These actions not only reignited the dormant dispute over DSTs but also expanded it, signaling a much more confrontational approach to transatlantic trade relations.

The Presidential Memorandum of February 21, 2025

The key document that formalized the new U.S. policy is a presidential memorandum titled “Defending American Companies and Innovators From Overseas Extortion and Unfair Fines and Penalties.”¹ This memorandum is the primary evidence confirming the substance of the news.

In it, the President explicitly ordered the USTR to “review and consider reopening” the Section 301 investigations into the DSTs of France, Austria, Italy, Spain, Turkey, and the United Kingdom.² The language used in the document is itself indicative of a radical change in tone. European digital taxes are no longer described as merely “discriminatory” but are labeled as “extortive” and part of a broader scheme of “unilateral and anti-competitive policies” designed to “transfer significant funds… from American companies” to foreign governments.⁴ This aggressive rhetoric has shifted the issue from a trade dispute to a matter of national economic security.

A Broader Mandate for Retaliation

The 2025 memorandum goes well beyond the DST issue, significantly expanding the battlefield. It tasks the USTR, the Department of the Treasury, and the Department of Commerce with identifying other foreign practices that “discriminate against, disproportionately target, or otherwise undermine” the competitiveness of U.S. companies.¹

Particularly significantly, the document specifically mentions investigating European Union or United Kingdom policies that might “undermine free speech or favor censorship.”⁴ This is a clear and unequivocal reference to the EU’s broader digital regulatory package, particularly the Digital Services Act (DSA) and the Digital Markets Act (DMA). In this way, the U.S. administration has linked the tax dispute to a fundamental disagreement over internet and digital platform regulation, greatly increasing the stakes.

The Likely Targets of New Tariffs

Should the reopening of the investigation lead to the actual imposition of tariffs, past actions provide the most likely template for future ones. The 2020 action against France, although suspended, targeted a trade volume of $1.3 billion and focused specifically on luxury goods.⁵

The logic behind the choice to target luxury goods is exquisitely strategic and political. First, it imposes significant economic pain on economically and politically influential sectors in Europe, particularly in France and Italy, maximizing political pressure on respective governments. Second, it has limited impact on a broad base of U.S. consumers. Since these are non-essential goods, consumed predominantly by higher income brackets, the inflationary impact on the average voter is minimal, making the measure politically more sustainable domestically.⁶ Finally, the iconic nature of these brands gives the action high symbolic value.

Table: U.S. Proposed Retaliatory Tariffs on French Goods (2020 List)

The following table lists some of the specific products included in the USTR’s proposed retaliation list in 2020, which constitutes the most likely starting point for any new measures.

HTSUS Code	Product Description
3304.10.00	Lip make-up preparations
3304.20.00	Eye make-up preparations
3304.99.50	Other beauty or make-up preparations and preparations for the care of the skin
3401.11.50	Soap and organic surface-active products, in bars, cakes, molded pieces or shapes
3401.30.50	Organic surface-active products and preparations for washing the skin
4202.21.60	Handbags, with outer surface of reptile leather
4202.21.90	Handbags, with outer surface of leather or of composition leather
4202.22.15	Handbags, with outer surface of plastic sheeting

Source: Data based on information from⁵

Analysis: The Instrumentalization of Trade Policy

The 2025 memorandum marks a crucial shift from a policy of negotiation, albeit supported by threats, to one of explicit coercion. This change represents a true “instrumentalization” of trade policy, used not only to resolve a tax dispute but to counter the European Union’s entire digital sovereignty agenda.

The reasoning behind this statement is based on a comparison between different administrations’ approaches. The previous administration, while initiating the investigation, used the threat of tariffs primarily as leverage to bring counterparts to the negotiating table, culminating in the OECD-mediated 2021 truce.²¹ The 2025 memorandum, in contrast, abandons the pretense of a negotiated solution (given that the United States has withdrawn from OECD talks) and frames the issue in terms of defense against “extortion.”⁴

Furthermore, by including in its mandate language that clearly alludes to the DMA, DSA, and “censorship,” the U.S. administration is signaling that it considers the EU’s entire regulatory approach to the digital economy as a hostile act.⁴ The tariff threat on the DST is no longer, therefore, just a matter of fiscal policy. It has become the opening salvo in what some analysts have called a broader “transatlantic tech war.”³²

This linkage strategy creates an extremely dangerous dynamic. If tariffs were imposed, the EU would almost certainly be forced to react. However, the dispute would no longer be about a specific tax that could be negotiated, modified, or withdrawn. It would be about a fundamental clash between two divergent regulatory and philosophical models for governing the digital economy. This makes a negotiated agreement much more difficult to achieve, as it would require one of the two parties to abandon fundamental policy principles. Consequently, the risk of a prolonged, damaging, and difficult-to-resolve trade war has increased exponentially.

VI. The European Union’s Strategic Calculation

Faced with renewed U.S. trade aggressiveness, the European Union finds itself navigating complex waters, balancing the need to project strength and defend its interests with the risk of escalation harmful to its economies. Brussels’ strategic calculation is influenced by a combination of legal tools, internal political dynamics, and economic imperatives.

Official EU Position: Regret and Retaliation

The European Union’s public position has been consistent over time: any U.S. tariffs deemed “unjustified” or unilateral will be met with “strong but proportionate” countermeasures.³³ Following the U.S. memorandum of February 2025, a European Commission spokesperson expressed concern about the “broad interpretations… and unilateral actions they might trigger.”¹

The EU’s operational manual in these situations is well-defined. It involves preparing lists of U.S. goods to target with retaliatory tariffs. Past examples, such as the response to 2018 steel and aluminum tariffs, included iconic and politically sensitive products such as Kentucky bourbon, jeans, motorcycles, and agricultural products from key states.³⁵ In response to recent threats, the Commission has already initiated new public consultations on potential countermeasure lists, which could target tens of billions of euros in imports from the United States.³⁶

The Anti-Coercion Instrument (ACI)

Compared to previous disputes, the EU now has a more powerful legal arsenal. In 2023, it adopted the Anti-Coercion Instrument (ACI), a new regulation specifically designed to deter and counter the use of economic coercion by third countries.³⁷

The ACI grants the Commission a wide range of powers to respond to such acts, once the Council has determined their existence. Possible countermeasures go beyond simple tariffs on goods and include restrictions on trade in services, foreign direct investment, access to public procurement, and even restrictions on intellectual property rights.³⁷ This instrument offers the EU greater flexibility and a more targeted and powerful retaliation capability than in the past, increasing the potential cost of unilateral action for the United States.

Internal EU Dynamics and Dilemmas

Despite a facade of unity projected by the Commission, the EU’s position is complicated by internal dynamics and strategic dilemmas.

Unity vs. National Interests: The greatest challenge for Brussels is maintaining alignment among the 27 Member States. While countries that have implemented a national DST (such as France, Italy, and Spain) have a direct and immediate interest in the conflict, other Member States, particularly those with strong economic and export ties to the United States (such as Germany in the automotive sector), might be more cautious about entering a large-scale trade war.³⁸ The bloc’s cohesion will be severely tested.

The EU-Level DST Option: For years, some European politicians and officials have advocated the idea of a bloc-level digital tax. Such a measure would not only strengthen the EU’s negotiating position but also provide a new and significant source of own resources for the Union’s budget.³⁷ However, this option has never reached the unanimous consensus necessary among Member States (fiscal policy requires unanimity) and, at present, seems to have been sidelined in favor of a response based on retaliatory tariffs on goods.³⁸

De-escalation vs. Confrontation: Conflicting signals emanate from Brussels. On one hand, the EU is meticulously preparing for retaliation, as demonstrated by public consultations on product lists.³⁶ On the other, indications of a desire for de-escalation emerge. Some analysts have interpreted the move to soften some compliance requirements of other regulations, such as the AI Act, as an attempt to placate U.S. concerns and keep dialogue channels open.³²

Analysis: The EU in Precarious Balance

The European Union finds itself trapped in a strategic dilemma, forced to walk a tightrope. On one hand, it must respond firmly to maintain its credibility as a geopolitical actor, to defend the legitimacy of its legislative process, and to discourage future acts of unilateralism by the United States or other partners. A failure to respond would be interpreted as a sign of weakness, inviting further pressure and undermining the EU’s goal of “strategic autonomy.”³⁷

On the other hand, a large-scale trade war with its largest trading partner would be economically devastating, especially in a context of global economic uncertainty. Export-oriented European economies, in particular, are highly vulnerable. A “tit-for-tat” escalation could, in some key sectors, damage the EU more than the United States, given the nature of respective economies and value chains.

Therefore, the EU’s most likely strategy will be a carefully calibrated mix of retaliation and diplomacy. The EU will threaten significant countermeasures and prepare concrete retaliation lists to create negotiating leverage and demonstrate its determination.³⁴ At the same time, it will constantly keep diplomatic channels open, emphasizing its preference for a negotiated solution and seeking to isolate the dispute to prevent it from contaminating the entire transatlantic relationship.³⁴

The outcome of this dispute will be a crucial test for the EU’s future on the world stage. Will the bloc succeed in acting as a unified and decisive geopolitical power, capable of defending its interests effectively? Or will internal divisions and economic vulnerabilities force it into a reactive or concessionary posture? The answer will have long-term implications not only for the future of the transatlantic relationship but also for the EU’s ability to assert its regulatory model and values in an increasingly competitive world.

VII. Conclusion: Analysis, Perspectives, and Strategic Recommendations

This analysis has demonstrated that the 2021 trade truce between the United States and Europe on digital taxation has definitively ended. The convergence of three factors — the stall of the OECD multilateral process, France’s move to increase its DST, and a more aggressive and unilateral U.S. trade posture — has reignited a conflict that has now expanded. The dispute is no longer just about fiscal policy but has transformed into a more fundamental clash over digital economy regulatory models, significantly increasing risks for businesses on both sides of the Atlantic.

Perspectives and Probability Assessment

Based on the evidence analyzed, the following perspectives can be outlined:

The probability that the United States will impose new tariffs on French goods (and potentially other European countries) during 2025 is high. The U.S. administration has issued a direct order to its trade agency, has used strongly confrontational political rhetoric, and has abandoned the multilateral negotiation path.⁴ In this context, the imposition of tariffs appears as the logical next step of the declared policy.

The most likely targets of such tariffs remain luxury goods. This choice serves the political objective of maximizing pressure on European governments, hitting high-profile and symbolic sectors, without imposing widespread and politically unpopular costs on the majority of U.S. consumers.⁶

A retaliatory response by the EU is almost certain if U.S. tariffs are imposed. The EU now possesses more powerful legal tools, such as the ACI³⁷, and has the declared political will not to accept unilateral measures without reacting.³³ The credibility of the European strategic autonomy project is at stake.

Economic Impact Analysis

The economic consequences of a tariff escalation would be significant and negative for both economies.

A 25% U.S. tariff would be highly damaging to the European luxury sector. It would lead to an immediate disruption of supply chains, increased costs for U.S. importers and distributors, and ultimately, a reduction in sales and profitability for iconic European brands.⁶ Demand for luxury goods is price elastic, and a 25% increase in the final cost to the consumer would have a tangible impact on sales volumes.

Similarly, EU countermeasures would damage targeted U.S. sectors. Whether agricultural products, spirits, machinery, or other goods, U.S. companies would see their access to one of their largest export markets reduced. This would translate into revenue loss, potential job cuts, and increased economic uncertainty. The final result would be a negative-sum economic outcome, where both parties suffer damage without any overall net gain.³³

Strategic Recommendations for Affected Businesses

Given the high probability of escalation, businesses exposed to transatlantic trade must adopt a proactive approach to mitigate risks. The following strategic actions are recommended:

Risk Assessment and Continuous Monitoring: Companies must immediately map their value chain exposure to potential tariffs. European exporters must identify products that could fall within U.S. retaliation lists, while U.S. exporters must do the same for EU countermeasures. It is essential to establish an active monitoring system of official communications, particularly USTR Federal Register notices and European Commission publications, for updated information on specific product lists, tariff rates, and implementation dates.

Tariff Mitigation and Supply Chain Planning: Businesses should actively explore strategies to mitigate the financial impact of tariffs. These include:

• A thorough review of their products’ tariff classification to ensure accuracy and verify whether legitimate alternative classifications exist that do not fall within retaliation lists.
• An analysis of customs valuation methodologies. For U.S. importers, using structures such as “First Sale for Export” could, in some cases, reduce the taxable base on which the tariff is calculated.²
• Developing contingency plans for diversifying supply sources and markets. Although this is extremely difficult for luxury goods tied to a specific brand and origin, all possible options must be evaluated to reduce dependence on a single trade corridor.⁴⁰

Advocacy and Institutional Engagement: It is essential that the private sector makes its voice heard. Companies should actively collaborate with trade associations (such as the U.S. Chamber of Commerce¹⁴ or European luxury federations) and engage directly with government officials on both sides of the Atlantic. The goal of this advocacy activity should be to promote a negotiated de-escalation, highlighting the economic damage that a trade war would inflict on jobs, businesses, and consumers in both the United States and European Union.

Legal and Contractual Review: Companies must conduct a comprehensive review of their commercial contracts with transatlantic partners. It is necessary to carefully examine clauses relating to tariff cost allocation, force majeure, price adjustments, and dispute resolution. Preparing for potential disruptions and the need to renegotiate contractual terms is a prudent and necessary step in the current climate of uncertainty.

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