Biden’s G-7 tax offer will win crucial political points in Europe with tougher battles ahead

LONDON — With G-7 officials likely to back a U.S. proposal for a minimum corporate tax rate this weekend, analysts have highlighted how it could help form alliances on geopolitical issues in the years ahead. 

Many European officials have for a long time called for joint approach to taxation, even in countries like Ireland where some major U.S. tech giants are headquartered. Essentially, the argument has been that in order to fix internal differences among the 27 EU nations, the best outcome would be to find a common method to tax on an international setting.

President Joe Biden has now given hope to such a policy, supporting a global minimum corporate tax rate of 15%. The question at this point is not so much whether there will be a deal in this regard, but when it will be confirmed. The rules are not only expected to have an impact on taxation, but also on other fronts, including on how the U.S. deals with China.

“Take any issue that is a problem from Washington’s point of view when it comes to China: Currency, intellectual property, the origins of the pandemic, behavior in the South China Sea, Xinjiang … All of these are important to various degrees to Washington. And they’re important to the Europeans too,” Jeremy Ghez, affiliate professor at H.E.C. Business School in Paris, told CNBC on Thursday.

“Where Biden and (former President Donald) Trump may differ is on the issue of alliances. Trump felt (the Europeans) were of little help and that Europe was as bad as China when it came to trade … Biden believes that with a broad coalition, you may be able to push China down a more constructive path. International pressure, that is pressure not coming from Washington only, could prove useful on any of these topics,” Ghez said.

In the latest escalation toward China, Biden has signed an executive order that bans American entities from investing in 59 Chinese firms allegedly tied to military.

Speaking to CNBC Friday, the EU’s commissioner for economic affairs, Paolo Gentiloni, said that relations with China “will be a very important issue” when the heads of state of the G-7 gather next week.

“We have to cooperate in some sectors, especially on climate change and climate transition, but at the same time we have to have a strong global agreement among us to ensure (a) level playing field on (the) economy, which is not at all granted from China and to face the challenge of the relation with China in the future,” he said, adding that the G-7 “will work together to find the right balance.”

The EU’s relationship with China has been bumpy in recent months. Ties between the EU and China had ended 2020 on a high note, with the signing of an investment deal that would make it easier for European firms to invest and work in China where they face competition from state-funded firms.

However, the ratification of this deal has been put on hold by Europe after a diplomatic row with Beijing in March.  At the time, the EU decided to impose sanctions against China for its treatment of the ethnic minority Uyghurs and Beijing retaliated by announcing counter-sanctions against members of the European Parliament.

The ethnic Uyghurs, who live mostly in China’s west, have been identified by the United Nations, United States, United Kingdom and others as a repressed group. China’s foreign ministry in March characterized such claims as “malicious lies” designed to “smear China” and “frustrate China’s development.”

Leslie Vinjamuri, director of the U.S. and Americas Programme at Chatham House, told CNBC earlier this week that the pause on the ratification was a “game changer” as it “allows for a bigger cooperation” between the EU and the U.S.

Discussions about China are likely to continue between U.S. and EU officials after next week’s G-7 leaders meeting, when Biden flies to Brussels for an EU-U.S. summit on June 15.