In a surprise move, US President Donald Trump announced on Friday that he is ending trade talks with Canada and imposing tariffs on Canadian goods in response to the country’s digital services tax. The tax, which is set to take effect on Monday, targets large online companies, including US tech giants such as Meta, Apple, Google, Amazon, and Microsoft.
According to Trump, the digital services tax is a “direct and blatant attack” on the United States, and he has therefore decided to terminate all trade discussions with Canada, effective immediately. Trump also warned that Canada will be required to pay a tariff rate to do business with the US, which will be announced within the next seven days.
The Canadian government has expressed disappointment over the breakdown in trade talks. Prime Minister Mark Carney said that his government wants to continue negotiating with the US and is willing to work towards a mutually beneficial solution. “We’ll continue to conduct these complex negotiations in the best interest of Canadians,” Carney said. “It’s a negotiation.”
The digital services tax has been a contentious issue in trade negotiations between the US and Canada. The tax is designed to capture revenue from large online companies, but US officials argue that it unfairly targets American businesses. Treasury Secretary Scott Bessent said that the US had hoped that the new Canadian government would put a hold on the tax during trade talks, but instead, it has decided to move forward with the tax, retroactive to 2022.
If Canada proceeds with the tax, Trump has threatened to impose higher tariffs across all Canadian goods. While the exact tariff rate has not been specified, Bessent warned that it could have significant economic implications for both countries. Canada is the top buyer of American goods, importing $349 billion worth last year, while Canada shipped $413 billion worth of goods to the US, making it the third-highest source of foreign goods.
The Business Council of Canada and the Canadian Chamber of Commerce have expressed concerns over the potential impact of the tariffs on trade relations between the two countries. Both organizations have urged the Canadian government to reconsider the digital services tax and work towards a negotiated solution with the US.
The tariff threat comes at a time when several other countries, including European Union nations, are also facing potential tariffs from the US. The US has set a deadline of July 9 for countries to ink trade deals or face reciprocal tariffs. While the US is in active discussions with some countries to address their digital services taxes, it remains to be seen whether Trump will extend the deadline or impose tariffs on other countries.
The news had a surprisingly positive impact on US stocks, with the S&P 500 and Nasdaq closing at record highs despite Trump’s tariff threat. The Dow gained 432 points, or 1%, as investors seemed to shrug off the potential economic implications of the tariffs. However, the long-term impact of the tariffs on trade relations between the US and Canada, and the global economy as a whole, remains to be seen.
