US, Canada to resume trade talks after Ottawa drops digital tax

Straits Times

2 days ago

U.S. President Donald Trump meets with Canadian Prime Minister Mark Carney in the Oval Office at the White House in Washington, D.C., U.S., May 6, 2025. REUTERS/Leah Millis/File Photo
FILE PHOTO: U.S. President Donald Trump and Canadian Prime Minister Mark Carney attend a meeting with G7 leaders and guests, at the G7 summit in Kananaskis, Alberta, Canada, June 16, 2025. REUTERS/Kevin Lamarque/File Photo
OTTAWA/WASHINGTON - The United States will resume trade negotiations with Canada immediately after Ottawa scrapped its digital services tax targeting U.S. technology firms, White House economic adviser Kevin Hassett said on Monday.
"Absolutely," Hassett said on Fox News Channel when asked about the talks restarting.
President Donald Trump had asked the Canadians to take the tax off at the G7 meeting in Canada, 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 U.S. technology firms just hours before this was due to start on Monday in a bid to advance stalled trade negotiations with the U.S.
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," U.S. 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 U.S. trade negotiations with key partners, including Canada.
U.S. 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% U.S. 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.
TRADE U-TURN
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 U.S.-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 a G7 summit earlier this month, 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 U.S. 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.
"The DST was announced in 2020 to address the fact that many large technology companies operating in Canada may not otherwise pay tax on revenues generated from Canadians," the statement said. "Canada's preference has always been a multilateral agreement related to digital services taxation."
Canadian business groups applauded Carney's decision to drop the tariffs as well as the U.S. 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
Removing it will move Canada closer to a "renewed, reliable trade deal" with the U.S., Pierce added in a statement.
Canada is the second-largest U.S. trading partner after Mexico, and the largest buyer of U.S. exports. It bought $349.4 billion of U.S. goods last year and exported $412.7 billion to the U.S., according to U.S. Census Bureau data.
The Biden administration had requested trade dispute settlement consultations over the Canadian digital tax in 2024, saying it was inconsistent with Canada's North American trade deal obligations.
Canada had escaped Trump's broad tariffs imposed in April but still faces 50% duties on steel and aluminum exports to the United States. REUTERS
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