By Andrew Moran
Contributing Writer
President Donald Trump announced on social media that he is ending all trade negotiations with Canada.
In a Truth Social post on Friday, Trump said the termination was made because of Canada’s plan to impose a digital services tax, which would affect U.S. tech companies. The tax is set to take effect on Monday. The president called the tax a “direct and blatant attack” on the United States.
The policy is a 3% levy on revenue earned from digital services provided to Canadian users and applies mainly to businesses such as Amazon, Airbnb and Google.
“Based on this egregious tax, we are hereby terminating all discussions on trade with Canada, effective immediately,” the president stated. “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 said that Canada “was obviously copying” the European Union, which also imposes this tax.
In March, the U.S. Trade Representative’s Office released the National Trade Estimate Report, noting that “most DSTs have been designed in ways that discriminate against U.S. companies, as they single out U.S. firms for taxation while effectively excluding national firms engaged in similar lines of business.”
“Through bilateral and multilateral engagement, the United States continued to raise serious concerns regarding Canada’s DST and to encourage Canada to withdraw or repeal the DST,” the report stated.
Then-Canadian Prime Minister Justin Trudeau implemented the tax in June 2024, and his government touted the measure as a way to level the playing field among tech companies and generate revenues to plug the hole in Ottawa’s federal budget.
Officials projected that the tax would generate approximately $7 billion over five years, with the funds dedicated to supporting public services and infrastructure.
Other nations, including France and the United Kingdom, have introduced similar taxes.
Canadian Finance Minister François-Philippe Champagne, speaking to reporters earlier this month, stated that the DST could be a part of broader discussions. In the meantime, it will be applied and enforced.
The Business Council of Canada, a nonprofit organization representing companies across the country, says it supports abolishing the digital services tax.
“For many years, the Business Council of Canada has warned that the implementation of a unilateral digital services tax could risk undermining Canada’s economic relationship with its most important trading partner, the United States. That unfortunate development has now come to pass,” the group said in a statement.
“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.”
The president also referenced Canada’s tariffs on dairy products imported from the United States.
Canadian officials and industry groups have pushed back against Trump’s assertion that “Canada is cheating the United States farmers on USMCA [United States-Mexico-Canada Agreement].”
Becky Rasdall Vargas, senior vice president of trade and workforce policy at the International Dairy Foods Association, said in March that Canada does impose a 250% tariff on U.S. shipments of dairy products but that this only applies when a specific quota is exceeded.
“Frustratingly, the U.S. has never gotten close to exceeding our USMCA quotas because Canada has erected various protectionist measures that fly in the face of their trade obligations made under USMCA,” Vargas said in a statement.
Blow to Canada’s Economy
Friday’s development could be a severe blow to U.S.-Canada trade relations, which totaled $762 billion last year.
Both nations have imposed tariffs on each other, but Trump and Canadian Prime Minister Mark Carney signaled progress was being made in reaching a trade deal.
Trump’s announcement comes days after he and Carney sounded optimistic about a trade deal during the G7 summit in Alberta earlier this month. They agreed to form a new economic and security pact by July 16.
“We agreed to pursue negotiations toward a deal within the coming 30 days,” Carney said in a post on the social media platform X. “I’m looking forward to continuing this work at this summit and in the weeks ahead.”
Data indicates that economic conditions north of the border are deteriorating.
According to Statistics Canada, the economy contracted 0.1% in April, and a preliminary estimate suggested a 0.1% decline in May.
Experts say that recession risks are beginning to emerge as Canada has faced a multitude of tariff-driven economic headwinds.
“This isn’t necessarily a sign we’re heading straight into a recession, but the risks are growing and cannot be ignored,” David-Alexandre Brassard, the chief economist at CPA Canada, said in a prepared statement.
“Tariffs have introduced new economic headwinds, and the recent doubling of steel and aluminum tariffs will increase pressure on manufacturing, a sector already showing significant weakness.”
Earlier this month, the Bank of Canada maintained its policy rate at 2.75%.
“Uncertainty remains high,” Bank of Canada Governor Tiff Macklem said in a June 4 statement.
“The Canadian economy is softer but not sharply weaker. And we’ve seen some firmness in recent inflation data. Against this backdrop, we decided to hold the policy rate unchanged as we continue to gain more information on U.S. trade policy and its impacts.”
While Brassard says the central bank’s next interest rate decision is critical — the institution’s next meeting will take place on July 30 — it is unclear whether the Bank of Canada will follow through on a rate cut.
“We expect that barring a trade negotiation miracle with the Trump administration, Canada’s economy is likely to tip into recession this year, and more interest rate cuts will be required,” Leslie Preston, a senior economist and managing director at TD Economics, said in a note.
