By John McDonald
Gold prices neared the $1,500 “ceiling” analysts have talked about throughout 2019 as President Trump announced new tariffs on French goods like champagne and cheese. The list of proposed tariffs covers dozens of products that Americans buy daily and has investors closely watching consumer sentiment and market movement.
According to a list released by U.S. trade officials in early December, French products like cheeses, beauty products, handbags, and champagne could soon face tariffs of up to 100 percent. That would equate to about $2.4 billion in French products being taxed at the newly escalated rates.
This move, economists and global analysts warn, could create a wedge between members of the European Union and the president. Last July, the president warned France that he would enact “substantial reciprocal action” if the country activated a digital services act that it has since brought to bear.
France passed the digital tax this past July despite the warning. It applies a 3 percent tax to revenue from digital services earned by firms based anywhere in the world that make more than $27.8 million in French revenue alone as well as generating more than $830 million worldwide.
This past August, the United States and France had announced a compromise on their tax issues. However, that moratorium expired last week.
“Targeting” American Companies
Although the tax does not apply only to U.S. companies, it will certainly disproportionately affect U.S. corporations like Facebook and Google. In fact, the qualifications for the tax are designed, intentionally or not, to “essentially include only American companies,” said U.S. commerce secretary Wilbur Ross in an interview on CNBC the same day as retaliatory U.S. action was announced.
“I’m not going to let people take advantage of American companies,” President Trump explained in another public statement made the same day. “If anyone is going to take advantage of American companies, it is going to be us; it’s not going to be France.”
He continued, saying he “does not love” Facebook and Google, but that as American companies they deserve protection from these types of heavy tariffs. The Internet Association, a tech trade group, released a statement praising support for the industry and warning, “Discriminatory digital services taxes act as a trade barrier for innovative American companies.”
Strongly Worded Reactions on Both Sides
French finance minister Bruno Le Maire said he expects the European Union as a whole to “retaliate strongly” if the U.S. sanctions are enacted. He added, “It is not what one would expect from an ally. It is not what one would expect from the United States.”
The European Commission backs France, according to EC spokesman Daniel Rosario. He said, “The European Union will act and react as one, and it will remain united.”
Gold Investors are Winning this Trade Standoff
Not surprisingly, gold values rose and hovered around $1,480/ounce in the wake of new global economic tensions. French luxury goods fell in value, with Hermes, Gucci, and LVMH all falling 2 percent or more.
France and the U.S. are currently in discussions, and if France agrees to refund U.S. companies the difference in what France will collect and what the companies must pay under a new agreement, then markets may stabilize. Regardless, with so many economic factors in play on the global stage, it seems unlikely that gold prices will fall in the near future.