On June 27th, President Trump announced on the social media platform “Truth Social” that he has terminated the ongoing trade negotiations with Canada that have been going on for several months. He mentioned that he will soon announce the new tariff rates that Canada will have to pay.
This decision to terminate the negotiations came after Canada announced the imposition of a Digital Services Tax (DST) on the United States. Trump described this move by Canada as a “direct and blatant attack” on the United States.
“In light of this egregious tax, we hereby terminate all trade negotiations with Canada, effective immediately. We will inform Canada within the next seven days of the tariffs they will have to pay for doing business with the United States,” Trump stated in his post on Friday.
The new Digital Services Tax in Canada is set to come into effect next Monday, with retroactive enforcement from January 1, 2022.
Trump, in his tweet on Friday, referred to Canada as “a very difficult country to engage in trade with,” citing the high tariffs of up to 400% on dairy products imposed on American farmers.
He also pointed out that Canada is following the European Union’s footsteps, as the EU has adopted a similar approach. However, the EU is currently in negotiations with the United States regarding this matter.
A Digital Services Tax is a method used by countries to levy taxes on online services, different from taxing physical products. Countries imposing such taxes can collect revenue from large online-operating companies – even if these businesses are not profitable.
According to a report released last year by the non-partisan Congressional Research Service (CRS), American companies, especially major tech giants such as Meta, Apple, Google, Amazon, and Microsoft, have been significantly impacted by the Digital Services Tax.
Trump has shown particular concern about the Digital Services Tax in trade negotiations with other countries, often referring to it as a “non-tariff trade barrier.”
According to data from the U.S. Department of Commerce, Canada is the largest buyer of American goods, with imports amounting to $349 billion last year. At the same time, Canada exported goods worth $413 billion to the U.S. last year, making it the third-largest foreign source of goods for the United States.
Imposing higher tariffs on Canada could potentially lead to retaliatory measures from Canada, resulting in higher tariffs on American goods as well.