Trump ends Canada trade talks in retaliation over digital tax

Malaysian Reserve

a day ago

PRESIDENT Donald Trump said he was ending all trade discussions with Canada in retaliation for the country's digital services tax and threatened to impose a fresh tariff rate within the next week.
'Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately. 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,' Trump posted Friday on social media.
Treasury Secretary Scott Bessent said on CNBC that he expects the administration will launch a so-called Section 301 investigation into Canada, a tool the US has used against other countries including China, which may lead to higher import taxes.
Canada and the US have one of the world's largest bilateral trading relationships, exchanging more than $900 billion of goods and services last year. But the alliance has grown tense since Trump won the election. The president threatened 25% tariffs on imports from Canada and repeatedly said he thinks it should become the 51st US state. Since taking office, he has put taxes on steel, aluminum and automobiles and other goods.
In response, many Canadians have boycotted US products and avoided travel to US destinations.
Canadian Prime Minister Mark Carney, speaking briefly on his way out of a meeting on Friday, said he hadn't spoken with Trump since his post. 'We'll continue to conduct these complex negotiations in the best interests of Canadians,' he said.
The Canadian dollar dropped more than 0.5% almost immediately after Trump's post before reversing those losses. Canada's benchmark equity index fell, ending the day down 0.2%, and the shares of companies that rely on moving goods across the border, including General Motors Co. and apparel maker Canada Goose Holdings Inc., also took a hit.
Dozens of countries face a July 9 deadline for Trump's higher tariffs to kick back into place, and have been engaged in negotiations with the US. That deadline doesn't apply to Canada and Mexico. The president imposed tariffs on the US's North American neighbors earlier this year over fentanyl trafficking and migration concerns, and talks with them are being handled on a separate track.
Last week, Trump and Carney met at the Group of Seven leaders' summit and agreed to try to hash out an agreement by the middle of July.
Business groups and some politicians quickly applied pressure on Carney to drop the digital tax. 'In an effort to get trade negotiations back on track, Canada should put forward an immediate proposal to eliminate the DST in exchange for an elimination of tariffs from the United States,' said Goldy Hyder, chief executive officer of the Business Council of Canada.
Ontario Premier Doug Ford reiterated his call for the prime minister to abandon the digital tax.
'We've long supported the idea that global tech giants should pay their fair share in the countries where they operate. But the digital services tax hasn't achieved that,' the Council of Canadian Innovators, which represents technology executives, said in a statement. 'It's functionally a pass-through cost paid by Canadian advertisers and consumers, and it leaves our economy exposed to draconian trade retaliation.'
Bessent on Thursday announced a deal with other G-7 countries that will exclude US companies from some taxes imposed by other countries in exchange for removing the Section 899 'revenge tax' from the administration's tax bill. However, the deal didn't address digital services taxes, which are in place in a number of countries but are opposed by Trump and his officials.
Canada's digital tax isn't new. It was passed into law a year ago but companies haven't had to pay it yet.
The government will proceed with implementing it, with the first payments due Monday, Canada's finance department said earlier Friday, before Trump's post. Business groups had warned it would increase the cost of services and invite retaliation by the US.
A group of 21 US lawmakers wrote to Trump earlier this month asking him to push for the tax's removal, estimating it will cost American companies $2 billion. Trump has long railed against taxes and other non-tariff barriers, casting them as an impediment to US exporters.
'We were hoping as a sign of goodwill that the new Carney administration would at least put a brake on that during the trade talks,' Bessent said on CNBC. 'They seem not to have.'
The US specifically asked for a 30-day delay in the tax when Trump and Carney met at the G-7, according to Kevin Hassett, Trump's National Economic Council Director, who spoke Friday in an interview with Fox Business.
The Canadian digital services tax is similar to those implemented by other countries, including the UK. The levy is 3% of the digital services revenue that a firm makes from Canadian users above C$20 million ($14.6 million) in a year.
It would apply to megacap technology companies including Meta Platforms Inc., Alphabet Inc. and Amazon.com Inc. and has been criticized by smaller players including Uber Technologies Inc. and Etsy Inc. 'We are disappointed by the Canadian government's decision to implement a discriminatory tax that will harm Canadian consumers, and we hope that this matter can be quickly resolved,' a spokesperson for Amazon said in an emailed statement.
Canadian Finance Minister Francois-Philippe Champagne suggested last week that the digital tax may be renegotiated as part of US-Canada trade discussions.
'Obviously, all of that is something that we're considering as part of broader discussions that you may have,' he said. –BLOOMBERG