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UPDATE 3-Trump says U.S. could tax French wine in retaliation for digital tax

David Shepardson and Sarah White

(Adds Trump comments on wine, background on exports)

WASHINGTON/PARIS, July 26 (Reuters) - U.S. President Donald Trump said on Friday the United States would hit France shortly with a "substantial reciprocal action" - and warned a new American tax on French wine was possible - after Paris announced a tax aimed at U.S. technology companies.

"If anybody taxes them, it should be their home Country, the USA. We will announce a substantial reciprocal action on Macrons foolishness shortly," Trump tweeted, referring to French President Emmanuel Macron. "Ive always said American wine is better than French wine!"

Later in the Oval Office, Trump told reporters the tax decision was wrong and he threatened the key French export.

"They shouldn't have done this," Trump said. "I told them, I said, 'Don't do it because if you do it, I'm going to tax your wine."'

He added a few minutes later the U.S. response would be announced soon and it "might be on wine, it might be on something else."

The United States is by far the largest single export market for French wine and spirits, which is Frances second-biggest export after aerospace. The United States in 2018 accounted for nearly a quarter of all French wine exports, or 3.2 billion euros' ($3.6 billion) worth.

French Economy minister Bruno Le Maire said in a statement after Trump's tweet that "the universal taxation of digital activities is a challenge that concerns all of us. We want to reach a deal on this within the framework of the G7 and the OECD. In the meantime, France will move ahead with national decisions."

White House spokesman Judd Deere said the United States "is extremely disappointed by Frances decision to adopt a digital services tax at the expense of U.S. companies and workers. Frances unilateral measure appears to target innovative U.S. technology firms that provide services in distinct sectors of the economy."

He added "the administration is looking closely at all other policy tools." Last week, Trump spoke with Macron and expressed concerns about the countrys proposed digital services tax, the White House said.

Earlier this month, the United States threatened tariffs on another $4 billion worth of additional European Union goods, including wine, cheese and whiskey - that could be hit with tariffs as part of a nearly 15-year dispute at the World Trade Organization over aircraft subsidies given to U.S. planemaker Boeing Co and its European rival, Airbus SE.

The EU's director general for trade, Sabine Weyand, this week said she expected the Trump administration to proceed to implement some of the tariffs after a WTO arbitrator ruled on the damage caused to Boeing as a result of illegal EU government aid to Airbus.

Two weeks ago, the French Senate approved the 3% levy that will apply to revenue from digital services earned in France by firms with more than 25 million euros in French revenue and 750 million euros ($834 million) worldwide.

Other EU countries, including Austria, Britain, Spain and Italy, have also announced plans for their own digital taxes.

They say a levy is needed because big, multinational internet companies such as Facebook and Amazon are currently able to book profits in low-tax countries like Ireland, no matter where the revenue originates. Political pressure to respond has been growing as local retailers on main streets and online have been disadvantaged.

The U.S. Chamber of Commerce said the tax "targets U.S. firms almost exclusively and largely spares French companies. We have repeatedly urged European governments to address this issue multilaterally in negotiations at the OECD."

The U.S. Trade Representative's Office (USTR) last month said it would hold a hearing on Aug. 19 in its probe of Frances new planned tax on big technology companies after Trump ordered an investigation into the tax, which could lead to the United States imposing new tariffs or other trade restrictions.

USTR could issue new tariffs on French goods after the public comment period closes on Aug. 26.

USTR said the levy was an unreasonable tax policy. The plan departs from tax norms because of extraterritoriality; taxing revenue not income; and a purpose of penalizing particular technology companies for their commercial success, it said.

The tax is due to apply retroactively from the start of 2019. USTR said that calls into question the fairness of the tax. (1 euro = $1.11) (Reporting by Tim Ahmann, Andrea Shalal Steve Holland and David Shepardson in Washington and Sarah White in Paris; editing by Dan Grebler and Jonathan Oatis)