FRANCE and the European Union (EU) said Tuesday that they were ready to retaliate, if U.S. President Donald Trump acted on a threat to impose duties of up to 100 percent on imports of champagne, handbags and other French products worth US$2.4 billion.

The threat of punitive tariffs followed a U.S. investigation that found a new digital services tax in France would harm U.S. technology companies and will intensify a festering trade dispute between Europe and the United States.

In London for a NATO summit, Trump and French President Emmanuel Macron exchanged a tight-gripped handshake before both said they hoped they could smooth out their differences over the digital services tax.

“They’re American companies. They’re tech companies. They’re not my favorite people, but that’s OK, I don’t care, they’re American companies. And we want to tax American companies. It’s not for somebody else to tax them,” Trump said.

“So it’s either gonna work out, or we’ll work out some mutually beneficial tax,” he said, referring to the levy threat. “And the tax will be substantial. I’m not sure it’s gonna come to that, but it might.”

The spat marks a new low in testy relations between Trump and Macron, who have been at odds over the American’s unilateralist approach to trade, climate change and Iran.

Earlier Tuesday, Trump criticized European allies, singling out Macron for his “very nasty” comments portraying the NATO alliance as “experiencing brain death.”

Macron’s finance minister called the tariff threat unacceptable and said the EU was primed to respond, if the United States imposed the new tariffs.

The European Commission, the EU executive, said the 28-nation EU would act as one and that the best place to settle disputes was at the World Trade Organization (WTO).

“I am determined to defend the interests of my country and of Europe,” Macron said, seated next to Trump.

The United States has already imposed 25 percent duties on French wine and cheese, as part of its WTO-sanctioned response to illegal EU aircraft subsidies, a move exporters said would penalize U.S. consumers, while severely hurting French producers.

France’s 3 percent levy applies to revenue from digital services earned by firms with more than 25 million euros (US$27.86 million) in revenues from France and 750 million euros worldwide.

An investigation by the U.S. Trade Representative’s office found the French tax was “inconsistent with prevailing principles of international tax policy.”

It said the tax was “unusually burdensome” for U.S. companies including Alphabet Inc.’s Google, Facebook Inc., Apple Inc. and Amazon.com Inc.

France is not alone in targeting big digital companies. A growing number of other countries are preparing their own taxes.

Governments including Washington are frustrated that big digital companies can book earnings in low-tax countries such as Ireland, regardless of where the end client is.

France says it will drop its digital tax as soon as an agreement is found at the Organization for Economic Cooperation and Development to overhaul decades-old international tax rules. (SD-Agencies)