In an already fraught era of global relations, digital service taxes are once again surfacing as a flashpoint in U.S. trade policy, threatening to widen fault lines between Washington and key trading partners.
DSTs are designed to capture tax revenue from companies with no significant physical presence in the countries where they operate online and interact with foreign users and their data. The levies target multinational internet-based platforms, such as social media and advertising networks, for revenue. In practice, that means many of America’s largest tech companies, including Amazon, Apple, Google, and Meta, may be taxed where they have little political representation. There are tens of countries around the globe either proposing, pausing, or enforcing a DST.
Those measures are now influencing trade and tariff negotiations, as the taxes are seen domestically as discriminatory against American companies. In October, France threatened to raise its 3% DST to 15%. But France later backed off to a proposed 6% hike after strong reactions from U.S. officials in President Donald Trump’s administration and on Capitol Hill.
“France’s proposed increase in its digital services tax would be an unwarranted attack on America’s digital companies and leave the U.S. Congress and the Trump Administration with little choice but to pursue aggressive retaliatory actions,” prominent Republican members of the House Ways and Means Committee said in a statement. The lawmakers added that they would “defend American workers and businesses by making clear to all nations that it’s better to work with the U.S. than against us.”
Similarly, the White House issued a memorandum in February of this year empowering the U.S. trade representative to “renew investigations under section 301 of the Trade Act of 1974 (19 U.S.C. 2411) of the DSTs of France, Austria, Italy, Spain, Turkey, and the United Kingdom,” which were initiated during the first Trump administration. It also called for an inquiry into pursuing “a panel under the United States-Mexico-Canada Agreement on the DST imposed by Canada and whether to investigate Canada’s DST.”
Trump posted this summer on his Truth Social account that he was putting “all Countries with Digital Taxes, Legislation, Rules, or Regulations, on notice that unless these discriminatory actions are removed, I, as President of the United States, will impose substantial additional Tariffs on that Country’s Exports to the U.S.A.”
The U.S. business community also opposes the measures. In response to the latest French initiative, John Murphy, the senior vice president and head of international at the U.S. Chamber of Commerce, said, “Cooler heads must prevail. We urge French policymakers to reconsider the direct and indirect harm this initiative will inflict on French workers, consumers, and the economy.”
France first introduced its 3% DST in 2019 for companies with global revenues in excess of 750 million euros and French revenues in excess of 25 million euros as a response to the larger trend of traditional tax systems’ failures to capture revenue in an increasingly digital world. When encouraging the French Senate to pass the measure, French Finance Minister Bruno Le Maire told the body that “we are merely reestablishing fiscal justice,” and creating “taxation for the 21st century.” At the time, the proposal was dubbed the “GAFA tax,” in reference to its main revenue sources, Google, Apple, Facebook, and Amazon, all American-based companies.
U.S. officials immediately objected, charging that the tax unfairly targets American companies. The first Trump administration threatened $2.4 billion worth of tariffs on French goods. A truce was reached while negotiations proceeded at the Organization for Economic Co-operation and Development, but France’s recent move to hike the tax has put retaliatory tariffs back on the table for the U.S.
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Canada also faced U.S. trade-related pushback on its short-lived DST. The measure, similar to France’s, was set to go into effect in June 2024 but was opposed by then-President Joe Biden’s administration under an already in-place free trade agreement between Mexico, Canada, and the U.S. Canada rescinded the DST in 2025 in the face of threats from the second Trump administration to halt trade negotiations with Canada and pursue the doubling of corporate tax rates on Canadian companies operating in the U.S.
With global negotiations stalled at the OECD, the U.S. has taken the lead in determining the fate of DSTs through bilateral negotiations with countries proposing the taxes. It remains to be seen whether U.S. threats of retaliatory tariffs will hold off the proliferation of DSTs around the world.
Jessica Melugin is the director of the Center for Technology and Innovation at the Competitive Enterprise Institute and a 2025 Innovators Network Foundation antitrust and competition policy fellow.
