On Friday, President Donald Trump announced the abrupt end to ongoing trade negotiations with Canada via a post on Truth Social. This decision was spurred by Canada's recent announcement of a Digital Service Tax (DST), which Trump described as “a direct and blatant attack on our Country.” He declared, “Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately.” Trump indicated that the new tariff rates for Canada would be communicated within the next seven days.
Trump has consistently criticized Digital Service Taxes during trade discussions, labeling them as “non-tariff trade barriers.” Canada's DST is scheduled to take effect on Monday, with retroactive implications dating back to 2022. These taxes allow countries to levy fees on online services, contrasting with traditional taxes on physical products. This policy disproportionately impacts American firms, particularly major technology companies like Meta, Apple, Google, Amazon, and Microsoft, according to a report from the nonpartisan Congressional Research Service published last year.
In light of Trump's announcement, Prime Minister Mark Carney expressed a desire to continue negotiations with the United States. “We’ll continue to conduct these complex negotiations in the best interest of Canadians. It’s a negotiation,” Carney stated to reporters. Meanwhile, Treasury Secretary Scott Bessent commented on CNBC about the unfairness of the retroactive nature of the tax, emphasizing hopes that the new Carney administration would reconsider its implementation during trade discussions.
If Canada follows through with the DST, Bessent warned that Trump is prepared to impose significantly higher tariffs on all Canadian goods, although he did not specify any exact rates. Canada is a crucial trading partner for the United States, importing a staggering $349 billion worth of American goods last year, while exporting $413 billion in goods to the U.S., making it the third-largest source of foreign goods.
Should the U.S. implement higher tariffs on Canadian goods, it is likely that Canada would retaliate with its own increased tariffs on American products, potentially leading to negative economic repercussions for both nations. The Canadian government is currently evaluating its response, as indicated by statements from Carney's office.
Additionally, Pierre Poilievre, leader of Canada’s Conservative Party, expressed disappointment over the stalled trade talks and hopes for a quick resumption of negotiations. Several Canadian businesses have urged the government to reconsider the DST, fearing it could escalate trade tensions with the United States. “For many years, the Business Council of Canada has warned that the implementation of a unilateral digital services tax could risk undermining Canada’s economic relationship with its most important trading partner, the United States,” said Goldy Hyder, president and CEO of the Business Council of Canada, in a statement to CNN.
Hyder suggested that to revive trade negotiations, Canada should propose the elimination of the DST in exchange for a waiver of tariffs from the United States. Similarly, the Canadian Chamber of Commerce reiterated the self-defeating nature of the DST, emphasizing the critical nature of Canada-U.S. relations at this time. “The tone and tenor of talks has improved in recent months, and we hope to see progress continue,” stated Candace Laing, president and CEO of the Canadian Chamber of Commerce.
Historically, Trump has threatened to impose a 25% tariff on all Canadian exports, with even higher rates for specific products. However, many Canadian goods have remained exempt from these tariffs as long as they comply with the United States-Mexico-Canada Agreement (USMCA) established during Trump’s first term. Notably, certain exceptions include tariffs on foreign cars and steel, which have faced a significant markup.
As the deadline for potential “reciprocal” tariffs approaches, Trump may have to make critical decisions regarding tariff rates and extensions of deadlines for countries yet to negotiate trade agreements with the U.S. While several EU countries also implement DSTs, Bessent mentioned that discussions are actively ongoing to negotiate reductions.
Despite Trump’s recent tariff threats, stock markets reacted positively, with the S&P 500 and the tech-heavy Nasdaq both closing at record highs, gaining 0.52%. The Dow Jones Industrial Average rose by 432 points, or 1%, indicating investor optimism amid ongoing trade uncertainties.
This article will continue to be updated with any new developments regarding the trade situation between the United States and Canada.
