"I want to tell our American friends that this should be an incentive for them to accelerate even more our work to find an agreement on the worldwide taxation of digital services", he said. It could affect U.S. giants Apple, Facebook, Amazon and Google.
They say a tax is needed for multinational internet companies who are able to profit in low-tax countries despite having no physical presence. It's for that reason that the United States government has ordered an inquiry into the new tax, with the potential to implement tariffs on French goods in retaliation.
Amazon applauded the USA trade representative's move and criticized the French tax as poorly constructed and discriminatory.
The new tax will apply to the French revenues of approximately 30 major companies, most of which are US-based.
Digital companies which make more than 750 million euros, with 25 million made in France, will be subject to the tax.
Markets rise on firm rate-cut expectations as trade woes loom
US stocks ended higher on Wednesday and the S&P 500 briefly crossed 3,000 points for the first time following Powell's remarks. The president reportedly looked into firing Powell after the Fed's last interest rate hike, in December.
But France hit back, with its finance minister Bruno Le Maire saying "between allies, we can, and we should, solve our differences without using threats".
Le Maire said this is the first time that the USA has ever opened a 301 investigation concerning France. The French budget is due to receive up to €500 million ($563 million) per year through the GAFA tax, and this income is expected to rise "quickly", according to the French Finance Ministry. Under Section 301 of the Trade Act of 1974, the president has authority to impose tariffs or take other restrictive measures if it's determined that a foreign country's trading rules are damaging to US businesses. He made a decision to impose the air tax on the plane after he was forced to drop the idea of raising the diesel fuel levy due to the violent protests of the yellow vests in the country.
The tax has always been championed by French president Emmanuel Macron as a way to show that governments are capable of taking action to rein in large tech companies, which are seen as paying minimal tax in Europe due to their use of accounting loopholes.
If the administration decides to tax French imports using the law as a countermeasure, consumers could end up paying more, Daniel Bunn, director of global projects for the right-leaning Tax Foundation in Washington, wrote on Thursday.
"The United States is very concerned that the digital services tax ... unfairly targets American companies", U.S. Trade Representative Robert Lighthizer said in a statement on July 10.