Canada scraps digital services tax, paving way for renewed US trade talks

Express Tribune

7 hours ago

US President Donald Trump meets with Canadian Prime Minister Mark Carney in the Oval Office at the White House in Washington, DC, US, May 6, 2025. REUTERS
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The United States will resume trade negotiations with Canada immediately after Ottawa scrapped its digital services tax targeting US technology firms, White House economic adviser Kevin Hassett said on Monday.
"Absolutely," Hassett said on Fox News Channel when asked about the talks restarting.
US President Donald Trump had asked the Canadians to take the tax off at a G7 meeting in Canada earlier in June, he said. "It's something that they've studied, now they've agreed to, and for sure, that means that we can get back to the negotiations."
Canada halted its plans to begin collecting a new digital services tax targeting US technology firms just hours before this was due to start on Monday in a bid to advance stalled trade negotiations with the US.
Canada's finance ministry said late on Sunday that Prime Minister Mark Carney and Trump would resume trade negotiations in order to agree on a deal by July 21.
"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," US Commerce Secretary Howard Lutnick responded in a post on X.
Stocks hit record highs on Wall Street on Monday morning as sentiment in the markets rose amid optimism about US trade negotiations with key partners, including Canada.
US Treasury Secretary Scott Bessent also struck an optimistic tone over the potential for "a flurry" of trade deals ahead of a July 9 deadline, after which 10% US tariff rates on imports from many countries are set to snap back to Trump's April 2 announced rates of 11% to 50%.
But Bessent, speaking on Bloomberg Television, warned that countries may not get extensions from that deadline, even if they are negotiating in good faith as he suggested previously. Any extensions would be up to Trump himself, Bessent said.
Trump abruptly called off trade talks with Canada on Friday over Ottawa's digital services tax, saying it was a "blatant attack." He reiterated this on Sunday, pledging to set a new tariff rate on Canadian goods within the next week, which threatened to push US -Canada relations back into chaos after a period of relative calm.
"We have countries that are negotiating in good faith, but they should be aware that if we can't get across the line because they are being recalcitrant, then we could spring back to the April 2 levels," Bessent said. "I hope that won't have to happen."
Trump and Carney met at the G7 summit, with the Canadian prime minister saying they had agreed to wrap up a new economic agreement within 30 days.
Canada's planned digital tax was 3% of the digital services revenue a firm takes in from Canadian users above $20 million in a calendar year, and payments were to be retroactive to 2022.
It would have impacted giant US technology firms, including Amazon.com, Meta, Alphabet's Google and Apple.
The tax collection slated for Monday will be halted, a statement from Canada's finance ministry said. Finance Minister Francois-Philippe Champagne will bring forward legislation to rescind the Digital Services Tax Act.
Canadian business groups applauded Carney's decision as well as the US Congress' removal of a "revenge tax" provision from Republican tax legislation, known as 899.
"The decision to eliminate the DST makes sense. This tax would have fallen on Canadian consumers, businesses, and investors in the form of higher costs and hurt our economy at a critical time," said David Pierce, vice president of Government Relations at the Canadian Chamber of Commerce in a statement.
Some observers said Carney's decision ran counter to his campaign promises, however. Carney's Liberal party won an election in April pledging to stand up to Trump.
"It feels like we're standing down really quickly," said Vass Bednar, managing director of the Canadian Shield Institute for Public Policy, a think tank.
Opposition Conservative Party leader Pierre Poilievre said Carney needs to demand concessions from Trump.
"Canadians need certainty that Liberals will put Canada First and defend Canadian sovereignty in these negotiations," Poilievre said on X.
Canada is the second-largest US trading partner after Mexico, and the largest buyer of US exports. It bought $349.4 billion of US goods last year and exported $412.7 billion to the US, according to US Census Bureau data.
Canada had escaped Trump's broad tariffs imposed in April but still faces other duties, including 50% on steel and aluminum exports to the United States.