Canada cans digital tax after Trump threats

Politico

30-06-2025

QUICK FIX
— Canada's decision to withdraw its digital services tax over President Donald Trump's trade threats will likely embolden the president's strategy of using tariffs to extract broader concessions from countries.
— The United States and India are eyeing later this fall for a comprehensive agreement on trade as Washington's demands weigh on negotiations.
— The Trump administration secured an exemption from a global minimum tax plan, while the U.S. dropped its threatened so-called revenge tax.
It's Monday, June 30. Welcome to Morning Trade! Got news tips? Suggestions? Want to grab a coffee? Hit us up at: [e-mail], [e-mail] and [e-mail]. Follow us on X: @_AriHawkins, @drdesrochers and @tradereporter.
Want to receive this newsletter every weekday? Subscribe to POLITICO Pro. You'll also receive daily policy news and other intelligence you need to act on the day's biggest stories.
Driving the day
CANADA CTRL+Z: In a bid to revive trade negotiations with the Trump administration, Canada said late Sunday it will drop its digital services tax on major technology companies like Apple, Amazon and Google — a levy that was set to begin raking in billions from U.S. firms.
'Canada is engaged in complex negotiations on a new economic and security partnership with the U.S.,' Canadian Finance Minister François-Philippe Champagne said in an X post. 'Rescinding the DST will allow the negotiations to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians.'
Canadian Prime Minister Mark Carney and President Donald Trump will resume trade discussions with the goal of reaching a deal by July 21, according to a statement from Canada's finance ministry.
The reversal comes after Trump on Friday declared he would be 'terminating' all trade discussions with Canada, effective immediately, because of the 3 percent tax on certain digital revenues earned in the country, and that he would announce new tariffs on Canada within the next seven days. (Canadian Prime Minister Mark Carney and Trump had previously agreed to secure a deal by July 16.) The president reiterated earlier Sunday that trade talks with Canada would not return 'until such time as they drop certain taxes,' in an interview on Fox News' Sunday Morning Futures With Maria Bartiromo.
Why it matters: Canada's decision to drop its digital services tax will likely embolden the Trump administration's broader approach to trade negotiations, which is to use tariffs not only as a tool to boost domestic manufacturing and revenue, but as a lever to extract concessions on a host of unrelated issues, particularly tech regulations. It comes after the administration asked South Korea to shelve so-called antitrust proposals and as it seeks to revise digital services measures in the United Kingdom and the European Union.
Industry view: The move is a relief for major technology companies that are increasingly getting caught up in Trump's trade war, and removes a long-running source of strain from the Trump administration.
Prior to the rescindment, the first payment was scheduled to be today. The tax charges retroactively from January 2022. In addition to those payments, U.S. companies would have faced up to $2.3 billion worth of annual losses, per the Computer & Communications Industry Association Research Center.
'We welcome the Canadian government's decision to withdraw this ill-advised measure, and we hope officials will provide guidance for businesses as the rescission takes place,' Megan Funkhouser, a senior director at the Information Technology Industry Council, which counts Apple, IBM, Microsoft and Nvidia as members, told Morning Trade.
INSIDE THE ADMINISTRATION
DELHI-CATE TALKS: Meanwhile, Washington and New Delhi continue to make progress toward the first phase of a trade deal, with the expectation that a more comprehensive agreement could come later in the fall, writes POLITICO's Dan and Megan Messerly.
At an event at the White House on Friday, Trump teased that, 'I think we're going to reach a deal where we have the right to go in and trade' in India. He added, 'We're looking to get a full trade barrier dropping, which is unthinkable, and I'm not sure that that's going to happen, but as of this moment, we've agreed to that.'
Key point: The White House has projected a rosy image of talks with the country, after reaching agreements on some agricultural issues, energy purchases and non-tariff barriers. But officially inking a deal has proven difficult, people close to the negotiations say, because of all the things the Trump administration is asking India to do to lower its trade barriers, while only offering to give up some of its newly imposed tariffs in return.
'Nothing riles Indians more than the idea that their government was bullied by a foreign leader,' said Syed Akbaruddin, India's former ambassador to the United Nations. 'A trade bargain that could have been a win-win deal now risks being portrayed by those who oppose it as a tribute, not a partnership.'
By the numbers: India has some of the highest tariffs of any major economy in the world, with an average rate of around 17 percent. Its government, in particular, has long sought to protect the country's millions of subsistence farmers, who have outsized political clout.
Reminder: India was one of the first countries to begin trade negotiations with the U.S., launching talks in February. While visiting India in late April, Vice President JD Vance announced the two sides had 'officially finalized the Terms of Reference' for the negotiations.
REGULATORY REVIEW
TIT FOR TAX: G7 countries have agreed to exempt the United States from applying a 15 percent minimum corporate tax rate, the Canadian G7 presidency said in a statement Saturday night.
Deal reached: The industrialized economies appeared to cave in to shield their own firms from Washington's threat of retaliation. The deal comes after the U.S. agreed to drop a so-called revenge tax against other countries that impose allegedly 'discriminatory' levies on U.S. firms, known as Section 899 from a sweeping domestic policy megabill.
Reminder: Lawmakers came under pressure from foreign officials and U.S. manufacturers to ease the mooted tax amid fears that it would have dented foreign investment in the country.
'INEFFECTIVE INSTRUMENT': The Bank for International Settlements issued a sharp rebuke of the U.S. administration's trade policies, urging it to confront its stubborn fiscal deficit instead of resorting to import duties to correct global trade imbalances.
'Even if there were merits to cutting trade deficits and boosting domestic production at the expense of imports, broad-based tariffs are an ineffective instrument for doing so,' the BIS, often dubbed the central bank for central banks, said in its annual economic review.
At the same time, Trump's protectionist policies have taken a toll on the global economy's growth prospects. In its latest outlook, the International Monetary Fund warned that trade tensions could lower economic growth to 2.8 percent this year, from 3.3 percent last year.
POLITICO Europe's Carlo Boffa has more here.
TRADE OVERNIGHT
— New Senate megabill text eliminates tariff exemption for low-value packages, per POLITICO Pro.
— Megabill in limbo with GOP senators locked in last-minute talks, POLITICO Pro reports.
— Treasury fills out key policy roles, per POLITICO Pro.
— Moolenaar urges Lutnick to box China out on AI, POLITICO Pro reports.
— Trump plans executive orders to power AI growth in race with China, per Reuters.
THAT'S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: [e-mail], [e-mail] and [e-mail]. Follow us @POLITICOPro and @Morning_Trade.