London: France has shelved a new tax on digital giants like Facebook and Google in a strategic backdown that will avert a showdown that threatened to spiral into a major trade war with the United States.

However, the United Kingdom will push ahead with a similar plan, prompting a blunt threat of retaliation from the White House on the sidelines of the World Economic Forum in Switzerland.

The relationship between French President Emmanuel Macron and US President Donald Trump soured over the digital tax. Credit:Ludovic Marin

France had wanted to slap a 3 per cent levy on firms with an annual revenue of more than €25 million in France and €750 million worldwide in a bid to prevent Google, Apple, Facebook and Amazon from shifting profits between countries to avoid taxes.

The targeting of Silicon Valley firms infuriated US President Donald Trump and soured his relationship with French President Emmanuel Macron. The White House threatened to retaliate with US$2.4 billion of new tariffs on French champagne, cheese, beauty products and designer handbags and vowed to go even further if the tax wasn't pulled.