The President of the United States, Donald Trump, announced last Friday (June 27th) that he would terminate all trade negotiations with Canada due to the imposition of a Digital Services Tax (DST). However, just two days later, the Canadian government promptly withdrew the digital services tax to avoid the trade talks with the United States from stalling.
Ottawa stated that the removal of this tax would put Canada-US negotiations back on track, aiming to reach a trade agreement by July 21st.
Canadian Prime Minister Justin Trudeau, after announcing the tax withdrawal on Sunday, stated, “Throughout our negotiations with the United States on new economic and security relationships, the new Canadian government will always judge agreements based on whether they promote the overall interests of Canadian workers and businesses.”
“The announcement today will help restore negotiations to achieve the goal set at the Kananaskis G7 Summit earlier this month – reaching an agreement by July 21, 2025.”
During the G7 Summit held in Kananaskis, Alberta on June 16th, Trudeau and Trump agreed to reach a trade agreement within 30 days.
The Digital Services Tax was initially intended to levy a 3% tax rate on technology companies providing digital services to Canadian users. The tax was set to take effect on June 30th and could be retroactively applied to 2022, requiring US tech companies like Amazon, Google, and Netflix to pay up to $2 billion in taxes by the end of June.
This Canadian tax policy has been a point of contention for both the Biden and Trump administrations. Trump stated last Friday, “Based on this egregious tax, we are terminating all trade negotiations with Canada effective immediately.”
“We will inform Canada in the next seven days of the tariffs they will need to pay to trade with the United States.”
The Trump administration had already imposed a 25% tariff on Canadian products, despite the coverage of goods under the USMCA. Washington also implemented comprehensive tariffs on all steel and aluminum products.
Trump informed reporters at the time that the United States has “tremendous influence” over Canada.
“We hold all the cards; we have a lot of trade with Canada,” Trump said. “Most of their business is done with us, and in that kind of a situation, they should treat us better.”
Ottawa has been seeking to restart trade negotiations with the US to reduce American tariffs.
When announcing the withdrawal of the Digital Services Tax on Sunday, Canadian Minister of Finance François-Philippe Champagne stated that this decision would facilitate progress in trade negotiations with the United States.
Champagne said, “The new government is committed to making Canada the strongest economy in the G7 and firmly supports Canadian workers and businesses.”
“Withdrawing the digital services tax will allow us to make key advancements in negotiations with the United States to establish new economic and security relationships and strengthen our efforts towards creating employment and prosperity for all Canadians,” he said.
Despite pressure from American and Canadian business groups and political figures to rescind the tax, Champagne had previously stated on June 19th that Ottawa would not halt the tax.
The Liberal government stated that the tax aligned with similar measures adopted by multiple countries, requiring businesses to pay their “fair share” of taxes in Canada.
According to estimates by the Canadian Parliamentary Budget Office, this tax is expected to generate $7.2 billion in revenue for Ottawa over five years.