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The monthslong negotiations with Canada end abruptly over digital services.

Trump Blames Canada’s ‘Egregious’ Digital-Services Tax

The Wall Street Journal reports Trump Says He Has Terminated Trade Talks With Canada

“Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately,” Trump wrote Friday on Truth Social.

Trump’s decision is the latest blow to an already strained relationship between the bordering nations. Trump has said the U.S. should annex Canada to improve trade relations and security. Recently elected Canadian Prime Minister Mark Carney has staked his political reputation on pushing back. He has said Canada isn’t for sale.

“These are very complex negotiations and we are going to continue them in the best interests of Canadians,” Carney said as he left his office in Ottawa on Friday.

The two countries had been negotiating a new trade deal for months. Trump and Carney clashed over dairy tariffs and the digital tax last week during a bilateral meeting at the Group of Seven summit in Canada.

Trump had grown furious that Canada refused to drop the digital-services tax, according to a senior U.S. official. He gave no warning to Canadian officials before publicly calling off talks in his post, this official said.

“Economically, we have such power over Canada, I’d rather not use it, but they did something with our tech companies…it’s not going to work out well for Canada,” Trump said later Friday in the Oval Office. “We have all the cards.”

Treasury Secretary Scott Bessent said on CNBC that the U.S. Trade Representative could soon start a Section 301 trade investigation to determine the harm being done to the American economy from Canada’s trade practices.

Canada’s finance minister, François-Philippe Champagne, earlier this month said the Canadian government had no intention of scrapping the tax, despite U.S. pressure to remove the levy.

The first payments from tech companies to the Canadian government over the digital-service tax, a levy on revenue companies make from Canadian users, are due on Monday. The tax would likely cost U.S. tech companies billions of dollars. It includes retroactive taxes on sales going back to 2022, and industry groups estimate the initial payment could total up to $3 billion, with subsequent annual payments north of $1 billion.

What Is Canada’s Digital Services Tax?

CBC News explains Canada’s Digital Services Tax.

Canada’s digital services tax (DST) affects mega companies that offer digital services — like online advertising or shopping — and earn more than $20 million in revenue from Canadian sources. Giant companies like Amazon, Apple, Airbnb, Google, Meta and Uber will be taxed three per cent on the money they make from Canadian users and customers.

The levy has been in place since last year, but the first payments are due starting Monday. It’s retroactive to 2022, so companies will end up with a $2-billion US bill due by the end of July.

Why is Canada creating the tax?

Revenue is one big benefit. The Parliamentary Budget Office estimated last year that the tax would bring in more than $7 billion over five years.

The Liberals first promised the tax during the federal election in 2019 under former prime minister Justin Trudeau, but it was delayed for years because a number of other nations wanted to work together on one, overarching digital taxation plan that could be applied in multiple countries.

As the delays dragged on, Canada went ahead with its own tax plan.

Aside from revenue, Ottawa has pitched the DST as a way to bring the tax code up to date and capture revenues earned in Canada by firms located abroad.

The Computer & Communications Industry Association has estimated U.S. companies could pay as much as $1 billion a year in tax if the measure remains on the books.

Why won’t Canada delay the tax until the trade war cools down?

Canadian and U.S. business groups, organizations representing U.S. tech giants and American lawmakers all signed letters in recent weeks calling for the tax to be eliminated or paused. But Finance Minister François-Philippe Champagne said the legislation was passed by Parliament, and Canada would be “going ahead” with the tax.

Pellerin, the international trade lawyer, said he suspects the federal government will avoid changing its plan because it’s taken a strategy of avoiding knee-jerk reactions to Trump’s negotiation tactics.

Do other countries have similar taxes?

Yes. France, Italy, Spain and the United Kingdom all have tax regimes in place, to name a few.

The easy solution is for countries to give up on digital services taxes when Trump ends reciprocal tariffs.

These digital service taxes are a very good way to get a better deal from Trump.

Canada also has leverage over US energy needs.

So let Trump throw a hissy fit. By the way, how many deals do we have? Trump said there were 200 guaranteed.

Trade wars are neither good nor easy to win. But they are fun for economic writers.

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Rocking in Terms of Deals!

Similarly, the Wall Street Journal reported, Trump Says U.S. Could Set Tariff Rates for Trading Partners Soon

“We’re rocking in terms of deals,” Trump said. But he added: “Now, at a certain point, we’re just going to send letters out. And I think you understand that, saying: ‘This is the deal. You can take it or you can leave it.‘”

Asked about the next potential trade deal, the president said the U.S. was dealing with about 15 countries, including Japan and South Korea. “But as you know, we have about 150-plus, and you can’t do that. So we’re going to be sending letters out in about a week and a half, two weeks, to countries telling them what the deal is like I did with EU,” he said.

Observation of the Day

It’s easy to make 300 deals in a day when you make deals with yourself.

Then again, one truly has to wonder.

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