The United States has terminated all trade talks with Canada, effective immediately, in response to Canada’s digital services tax on technology companies.
US President Donald Trump announced the decision on his Truth Social platform, calling the Canadian tax a “direct and blatant attack on our country”. “Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately,” Trump wrote. He added that the US would inform Canada of the tariffs they would be paying to do business with the US within the next seven days.
The digital services tax, which was approved by Canada last year, imposes a 3% tax on digital services revenue above 20 million Canadian dollars ($14.6m) in a calendar year.
The tax is set to be collected starting Monday, covering revenue retroactively from 2022. Canadian Finance Minister Francois-Philippe Champagne had suggested that the digital tax might be negotiated as part of broader US-Canada trade discussions, but Trump’s announcement has put the status of those talks in doubt.
Canadian Prime Minister Mark Carney’s office responded to Trump’s statement, saying that the Canadian government would continue to engage in negotiations with the US in the best interests of Canadian workers and businesses. Experts have described Trump’s move as an escalation, noting that Canada would need to work behind the scenes to find an off-ramp without giving in to US demands.
“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 in to his demands.”
Rachel Ziemba, adjunct senior fellow at the Center for a New American Security, added that Trump’s declaration was “not surprising” and would also act as a scare tactic for the European Union, with whom the US is still negotiating its trade deal.
The tariffs imposed by the US would hurt both countries, increasing costs for businesses and consumers. Canada is the second-largest trade partner for the US after Mexico, with bilateral trade totaling $762.1 billion last year.
The Canadian economy has already been impacted by Trump’s tariffs on steel, aluminum, and some auto parts, with unemployment rising to 7%. Candace Laing, president and CEO of the Canadian Chamber of Commerce, emphasized the importance of progress in Canada-US relations, despite the challenges posed by the digital services tax.