Choppy Post-Brexit Waters Ahead as UK Relations with US Face Challenges on Three Fronts

The UK is finally set to leave the European Union on 31 January in a move that will reshape its trade relations with the rest of the world, with many of the implications still uncertain, and the country is facing major challenges, both on the domestic front and in the international arena.

As the UK is set to formally exit the EU on 31 January, Prime Minister Boris Johnson is conceivably facing post-Brexit friction with US President Donald Trump over several contentious issues, such as tax, trade and foreign relations, reports The Times.

Digital Services Tax

Despite the implications of unleashing a possible trade war with Washington, Boris Johnson is said to be determined to forge ahead with the introduction of a levy on large technology companies.
As several European countries have been riled up over the huge profits made by global internet giants like Google, Amazon and Facebook, which allegedly employ tax-dodging tactics, Britain is planning to follow Italy in imposing a digital service tax which is touted as likely to raise £1.5 billion over four years.
UK Finance Minister Sajid Javid has said Downing Street will impose a 2 percent sales duty on tech giants like Facebook and Google in April, even as the country hopes to hammer out a new free trade deal with the United States following Brexit and despite a threat of tit-for-tat retaliation made at the Davos summit on Wednesday, 22 January by Washington.

“It’s important — as we said at the time when we first introduced it to parliament and legislated for it — it is a proportionate tax,” said Javid.

The Chancellor of the Exchequer said that the government’s “strong preference” was for an internationally agreed-upon tax, but it was taking “too long to address”.
On the issue of a similar tax, France recently backed down, agreeing to postpone its introduction pending negotiations between President Emmanuel Macron and Donald Trump, after being threatened with retaliatory tariffs on wine and cheese.
When questioned at the World Economic Forum in Davos on Washington’s response in the event that Britain moves ahead with its tax, US Treasury Secretary Steven Mnuchin said the US would consider imposing tariffs on UK car exports.
Mnuchin argued that the UK-proposed tax was discriminatory because it would mainly hit US companies.

“If people just want to just arbitrarily put taxes on our digital companies, we’ll consider arbitrarily putting taxes on car companies,” CNN quoted Mnuchin as saying.

The official added, in a more conciliatory tone: “We’re going to have some private conversations. I’m sure this will be worked out, if not at our level then between the prime minister and the president who have an excellent relationship.”

Mnuchin dangles auto tariffs as a weapon to deal w/ digital taxes

"We think the digital tax is discriminatory in nature... if people want to just arbitrarily put taxes on our digital companies we will consider arbitrarily putting taxes on car companies"

— Saleha Mohsin (@SalehaMohsin) January 22, 2020

Higher tariffs on cars made in the United Kingdom would be a blow to an industry that has been hard hit by Brexit uncertainty, with auto production declining for 17 of the past 18 months, according to the UK Society of Motor Manufacturers and Traders. According to the SMMT, nearly 20 percent of UK car exports are to the United States.

On the issue of trade, Sajid Javid had also emphasised that the government’s “first priority” was reaching a trade deal with the EU rather than the US, with a government source cited by The Times as clarifying that the Chancellor was referring to there being a “hard” deadline of securing a trade deal with the EU by 31 December.

Steven Mnuchin responded:

Donald Trump said in Davos that Boris Johnson would “come out great” from trade negotiations with Brussels, adding that the prime minister has “a lot of guts”.

Britain’s decision on Huawei, which has long been a key provider to the British telecom sector, is expected to be taken at a meeting of the National Security Council next week, and risks rendering UK-US relations more fraught.

Washington has said that giving the green light to China’s Huawei for building “non-core” parts of Britain’s 5G network would be “madness”, as it threatened to limit intelligence-sharing with Britain.

US officials came to Britain on 13 January to lobby Washington’s stance on the Chinese tech giant, urging the country to backtrack on its initial plan to allow Huawei to supply a number of non-core 5G elements to their tech market, and citing fresh information about the security hazards that the use of Huawei equipment allegedly entails.

President Trump has long urged the US’ European and other allies to cut ties with the company, and even blacklisted entities that deal with Huawei back home, on grounds that the company is allegedly a threat to national security.

Both the Chinese government and Huawei have repeatedly denied all allegations, contending that the technology that the company uses is absolutely transparent.

The Iran nuclear deal, which Washington unilaterally withdrew from on 8 May 2018, has also slightly contributed to the transatlantic rift, as earlier in January, Donald Trump criticised UK, France and Germany for their continued support of the JCPOA.

On 14 January, the foreign ministers of the UK, France, and Germany – countries which are signatories to the Iran nuclear deal – announced that they "have no choice" but to take action, through the Dispute Resolution Mechanism (DRM) of the 2015 Joint Comprehensive Plan of Action (JCPOA) to bring Iran back into full compliance with the accords.

The British Prime Minister subsequently urged the US president to forge a new pact to keep Iran from obtaining a nuclear weapon, saying:

Previously, on 5 January, Tehran announced that it would no longer comply with the limits of the Iran nuclear deal, which was set to considerably reduce Iran's nuclear programme and its stockpile of medium- and low-enriched uranium in exchange for the removal of international sanctions.

The announcement was made in the wake of a severe escalation of tensions in the region after top Iranian military commander Qasem Soleimani was killed in a US-authorised drone strike on 3 January.