Canada Surprisingly Scraps Digital Services Tax Targeting US Tech Firms After Caving in to Trump's Pressure and Resumes Trade Talks
Canadian Prime Minister Mark Carney caved in just hours before the new tax was set to come into effect on Monday, as Canada now rushes to resume stalled trade talks before the fast-approaching July 21 deadline. This came after Trump, in a shock announcement on Friday, said that he was putting trade negotiations with Canada on hold in response to the proposed digital tax.
Canada on Sticky Ground
The strategy of creating pressure proved effective, giving the president a win on the trade front. The proposed tax would have been applied retroactively, leaving the companies with a $2 billion bill due, payable in the U.S. by the end of the month.
Carney and Trump spoke on Sunday and agreed to restart trade talks, aiming to reach an agreement by July 21, according to a statement from Canada's finance ministry.
In the interim, Ottawa announced it would hold off on collecting the 3% tax, which would have impacted major U.S. tech giants such as Amazon, Google, and Facebook.
The Canadian government announced that lawmakers would introduce a bill to repeal the tax "in anticipation of a mutually beneficial comprehensive trade arrangement with the United States."
The U.S. stock market reacted positively to the development, opening higher on Monday.
"Thank you Canada for removing your Digital Services Tax which was intended to stifle American innovation and would have been a deal breaker for any trade deal with America," American Commerce Secretary Howard Lutnick said in a post on X.
Canada's proposed tax would have required companies such as Amazon, Google, Meta, Uber, and Airbnb to pay a 3% levy on revenue generated from Canadian users.
The tax was set to be implemented retroactively, resulting in a $2 billion payment U.S. firms would owe by the end of the month.
Succumbing to Trump's Pressure
Trump was furious, describing the move as "a direct and blatant attack on our country." Speaking to reporters on Friday, the president said that "Canada has been very difficult country to deal with over the years."
However, he showed optimism that Ottawa would back off, saying, "we have all the cards. We have all - every single one."
"We do a lot of business with Canada, but relatively little they do most of their businesses with us," he said, adding, "Economically we have such power over Canada, I'd rather not use it."
The trade negotiations are especially crucial for Canada, given that its economy relies significantly on exports to the United States.
"In our negotiations on a new economic and security relationship between Canada and the United States, Canada's new government will always be guided by the overall contribution of any possible agreement to the best interests of Canadian workers and businesses," Carney said in a statement.
Canada and the United States have been in talks about reducing the 25% tariff that Trump imposed on most Canadian imports, citing concerns over fentanyl trafficking and border migration issues.
Additionally, Canadian steel and aluminum exports to the U.S. are currently subject to 50% tariffs.
Canada is the second-largest trading partner of the United States, after Mexico, and is the top buyer of American exports. According to data from the U.S. Census Bureau, Canada imported $349.4 billion worth of U.S. goods last year, while exporting $412.7 billion to the United States.
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