Trump says US ending all negotiations with Canada over digital tax
Trump in a post on his Truth Social platform on Friday called the Canadian tax a 'direct and blatant attack on our country' and said: 'Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately'. He added, 'We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period.'
Canada had approved the Digital Services Tax act on June 20, 2024 and it came into force shortly after on June 28. Under this, Canada will charge a tax of 3 percent of the digital services revenue a firm makes from Canadian users above 20 million Canadian dollars ($14.6m) in a calendar year.
Businesses have been calling for a pause saying it would increase the cost of providing services as well as raise the wrath of the US government. But the Canadian federal government so far has refused and is proceeding with the plans. The Canadian Revenue Authority is set to start collecting the tax on Monday and will cover revenue retroactively to 2022.
Last week finance minister Francois-Philippe Champagne suggested to reporters that the digital tax may be negotiated as part of broader, ongoing US-Canada trade discussions, Bloomberg news reported. Those discussions seemed to have been going well and a trade deal was expected in July. Now the status of that is unclear.
'This is definitely escalation from Trump,' said Vina Nadjibulla, vice president of research and strategy at the Asia Pacific Foundation of Canada. 'But we have seen this tactic before. Canada will need to work behind the scenes to find an off ramp without giving into his demands,' she said.
'Digital tax is also part of Trump's negotiations with the European Union. Canada will need to coordinate with the EU and other partners as it contemplates its response,' Nadjibulla added.
Rachel Ziemba, adjunct senior fellow at the Center for a New American Security, told Al Jazeera that while Trump's declaration was unfortunate, it was 'not surprising' adding, it would also act as a scare tactic for the EU with whom the US is still negotiating its trade deal.
Tariffs on Canadian goods are bad for both the US and Canada as they increase the cost for businesses and ultimately consumers, experts say.
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How will Trump's semiconductor tariffs affect the global chip industry?
United States President Donald Trump has threatened to impose tariffs of up to 300 percent on semiconductor imports, with exemptions for foreign companies that commit to manufacturing in the US. Trump has cast the proposed tariff as a way to drive investment to the US, but experts say it could also disrupt global supply chains and even penalise companies already making chips in the US. What are the details of Trump's plan? Few details have been released since Trump announced plans for a 100 percent tariff at a White House event on August 7. The US president said exemptions would be given to companies that build research or manufacturing facilities in the US, but tariffs could be applied retroactively if they failed to follow through on their planned investments. 'If, for some reason, you say you're building, and you don't build, then we go back, and we add it up, it accumulates, and we charge you at a later date, you have to pay, and that's a guarantee,' Trump told reporters. On Friday, Trump told reporters on board Air Force One that more details would be announced soon and that the tariff could be much higher than previously suggested. 'I'll be setting tariffs next week and the week after, on steel and on, I would say chips – chips and semiconductors, we'll be setting sometime next week, week after,' Trump said en route to Alaska to meet with Russian President Vladimir Putin. 'I'm going to have a rate that is going to be 200 percent, 300 percent,' he added. Why does Trump want to impose tariffs on chip imports? Trump wants to impose a tariff on chips for several reasons, but the main one is to re-shore investment and manufacturing to the US, said G Dan Hutcheson, the vice chair of Canada's TechInsights. 'The primary goal is to reverse the cost disadvantage of manufacturing in the US and turn it into an advantage. It's mainly focused on companies that are not investing in the US,' Hutcheson told Al Jazeera. 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It is less clear how the measure could affect other companies, including chip makers in China, where companies face barriers to US investment from both US and Chinese regulators. Yongwook Ryu, an assistant professor at the Lee Kuan Yew School of Public Policy in Singapore, said the tariff could be used as leverage by the US as it negotiates the rate of its so-called 'reciprocal tariffs' on China. The US has imposed blanket tariffs of 10-40 percent on most trade partners since August 7, but negotiators are still hammering out a comprehensive trade deal with Beijing. 'My view is that while the reciprocal tariffs are generally aimed more at addressing the US trade deficit problem and re-shoring manufacturing back to the US, product-specific or sectoral tariffs [like semiconductors] are aimed at serving the strategic goal of strengthening US technological hegemony and containing China,' Ryu told Al Jazeera. What is the value of US chip imports each year? The US imported about $40bn in chips in 2024, according to a report by the American Enterprise Institute, citing United Nations trade data. Imports mainly came from Taiwan, Malaysia, Israel, South Korea, Ireland, Vietnam, Costa Rica, Mexico and China, but experts say this data does not capture the full picture of chip flows in and out of the US. Chips can cross borders multiple times as they are manufactured, packaged, or added to finished goods. Chris Miller, the author of Chip War: The Fight for the World's Most Critical Technology, estimates that another $50bn worth of chips entered the US in 2024 via products like smartphones, auto parts and home appliances from countries like China and Vietnam. Miller also estimates that a 'substantial portion' of US chip imports are manufactured in the US before being sent overseas for packaging – a labour-intensive process – and then re-imported. 'Many of the chips imported from key trading partners like Mexico, Malaysia and Costa Rica are likely actually manufactured by US firms like Texas Instruments and Intel, which have manufacturing in the US but often have their test and assembly facilities abroad,' Miller told Al Jazeera. Why is the tariff a concern for the global chip industry? Trump's tariff plans have injected further uncertainty into an industry already grappling with his administration's sweeping efforts to reorder global trade. 'It's unclear whether the US government has the capacity to effectively enforce this and… there's not really any guidance in terms of what these tariffs are actually going to look like,' Nick Marro, the lead analyst for global trade at the Economist Intelligence Unit, told Al Jazeera. The White House has yet to provide details on whether the tariff will apply to chips originally made in the US and chips contained in finished products. If the latter were included in the tariff plans, the fallout would extend to industries like electronics, home appliances, automobiles and auto parts. Miller said that it would be consumers in the US and elsewhere who would be among those most affected by the tariff. 'Initially, it appears that most costs would be paid by companies via lower profit margins, though in the long run, consumers will pay the majority of the cost,' he said.
