As Canada pushes for new digital services taxes on foreign and domestic technology companies, US President Donald Trump has retaliated by ending all trade talks and threatened to impose additional tariffs on exports from Ottawa.
In his true social platform post Friday, Trump called the new Canadian tax structure a “direct and blatant attack on our country,” adding that Canada is “a country that is extremely difficult to trade.”
“Based on this terrible tax, we will soon end all discussions about trade with Canada,” he writes. He added that he will announce his own new tariffs for Canada in the coming days.
US companies such as Amazon, Meta, Google and Uber are facing bills of estimated $2 billion under the new tax.
Trump’s decision marks a sharp return to trade tensions between the two countries, and abruptly ends a more cooperative phase since the election of Mark Carney as Canadian Prime Minister in March.
It also shows further escalation of tactics as a trade for Trump’s second term in Washington.
The United States is Canada’s largest trading partner, with over 80% of Canada’s exports to the United States. In 2024, total commodity trade exceeded US$7620 billion, with Canada exporting $422.7 billion and importing $349.4 billion. This leaves the US and Canada counts as the second-largest trading partner, with $63.3 billion in goods.
Tariff disruptions on products such as automobiles, minerals, energy or aluminum can have a major ripple effect on both economies.
So, what is Canada’s digital tax? Why is Kearney facing a domestic pushback to taxes? And how does Washington respond?
What is the Canada Digital Services Tax?
Canada’s Digital Services Tax Act (DSTA) came into effect last June. This is a collection of technology revenue generated from Canadian users. Even if the provider does not have a physical presence in the country.
The DSTA was first proposed in a federal election under then Prime Minister Justin Trudeau in 2019, and was approved in Canada on June 20, 2024. It went into effect one week later on June 28th. The initial payment of this tax is scheduled for Monday, June 30th, 2025.
Large tech companies with global revenues exceeding $820 million and Canada’s revenues exceeding $14.7 million must pay a 3% collection of certain digital services revenues they have acquired in Canada. Unlike traditional corporate taxes based on profits, this tax targets gross revenues related to Canadian user engagement.
Digital Services apply to include online markets, social media platforms, digital advertising, and the sale or license of user data.
One of the most controversial parts of the new business framework is its retroactive nature, requiring payments of revenues by January 1, 2022.
Why is Trump suspending trade talks via new taxes?
On June 11, 21 U.S. Congress members wrote to President Trump, urging Canada to put pressure on him to eliminate or suspend the Digital Services Tax. “If Canada decides to move forward with this unprecedented retroactive tax, it will set a horrific precedent that will have a long-term impact on global tax and trade practices,” they wrote.
Then in the Truth Social Post this Friday, Trump said Canada has confirmed that it will continue its new digital services tax on American tech companies, a direct and blatant attack on our country.
He added that the US will “quickly close all discussions about trade with Canada” and that he will impose his own new tariffs in Canada within seven days.
“They have charged farmers 400% tariffs on dairy products over the years,” Trump said.
Then, in the oval office, the cards doubled, “We have all the cards. We all have one card.” He pointed out that the US has “that power over Canada.” [economically]”. “We don’t want to use it,” Trump said. “It’s not working for Canada. They were stupid to do that.
“Most of their business is with us. When you have that situation, you treat people better.”
Trump also ordered an investigation into Section 301 under the Trade Act to assess the impact of the DSTA on US commercial transactions, saying it could lead to other punitive measures.
On Friday, Kevin Hassett, director of the White House National Economic Council, told the Fox Business Friday program:
Calling the tax “almost criminal,” he said: “They’ll have to remove it, and I think they know it.”
How did Canada respond?
As they continue to trade talks, it has been appearing to be friendly between the two North American neighbours for the past few months. President Trump and former Prime Minister Justin Trudeau had previously clashed – during 2018 G7 talks in Canada, Trump called Trudeau “very dishonest” and “weak.”
However, newly elected Carney enjoyed a sincere visit with Trump at the White House in May, but Trump traveled to Canada on June 16th and 17th for the G7 Summit in Alberta. Carney said at the summit that the two had set a 30-day deadline for trade talks.
In a brief statement Friday, Prime Minister Carney’s office said of Trump’s new threat to suspend trade talks over digital taxes:
Last week, Canadian Finance Minister Francois Philippe Champagne told reporters that digital taxes could be negotiated as part of a wider and ongoing US-Canadian trade debate. “Obviously, it’s all about what we’re considering as part of a broader discussion you might have,” he said.
These debates were expected to lead to a trade deal in July. But they are now on the frontier.
What do Canadian business leaders say?
Kearney is also facing pressure from domestic businesses, pushing the government to suspend digital services taxes, emphasizing that a new framework will provide services and increase the cost of warnings against retaliation from the US.
The Canada Business Council, a nonprofit organization representing CEOs and leaders of Canadian companies, said in a statement for many years that “unsolved digital services tax implementation could risk damaging Canada’s economic ties with our most important trading partner, the United States.”
“That unfortunate development has now been successful,” the statement said. “To get trade negotiations back on track, Canada should submit an immediate proposal to eliminate DST in exchange for elimination of tariffs from the US.”
Has Trump previously used tariffs to put pressure on Canada?
yes. Before the DSTA, Trump used tariffs to use Canada’s role in the undocumented flow of addictive drugs, fentanyl, and undocumented migration to the US, as well as its role in the broader trade and economic issues.
On January 20th, in his inaugural address, Trump announced a 25% tariff on all Canadian goods and a 10% tariff on Canadian energy resources. Trump claimed Canada has a “growing footprint” in fentanyl production, and that Mexican cartels run fentanyl labs in Canada, particularly British Columbia, Alberta and Ontario.
These tariffs were suspended for 30 days after guaranteed from Canada, with appropriate measures taken to curb the flow of fentanyl and reimposed in early March.
Do other countries collect similar digital taxes?
Yes, several countries around the world have implemented the same Digital Services Tax (DST) as Canada. France was one of the first to introduce DST in 2019, eliciting an angry response from Trump, who was serving his first term as president. The French tax is a 3% collection of revenue from online advertising, digital platforms and sales of user data.
The UK has earned a 2% tax on revenue from social media platforms and search engines. Spain, Italy and Austria also implement similar taxes, with tax rates ranging from 3-5%. Turkiye’s DST rate is 7.5%, covering a wide range of digital services, including content streaming and advertising.
Outside of Europe, India has a 2% “equalization tax” on foreign e-commerce operators who earn revenue from Indian users. Kenya and Indonesia have also created their own digital tax systems, but Indonesia, for example, applies value-added tax (VAT) or sales tax to foreign digital services rather than DST.
The US government is strongly opposed to these taxes. Some of these conflicts have been suspended as part of ongoing negotiations led by the Organization for Economic Co-operation and Development (OECD), an international organisation of 38 member states, working on a global agreement to significantly tax digital companies.
Canada has given time to speak with the OECD, with the implementation of DST until 2024. However, when progress stagnated, we proceeded with a retroactive 3% tax, which was applied since January 2022.
Should the EU be worried about this?
The European Union may be looking closely at this situation as digital taxes are likely to become a key concern during trade talks with the US.
Trump has repeatedly warned that similar tax systems from other allies, including EU countries, could face serious retaliation.
Trump’s administration has previously opposed digital taxes introduced by EU member states such as France, Italy and Spain. In 2020, US trade representatives investigated these taxes under Section 301 and threatened retaliatory tariffs, but OECD-led global tax negotiations were postponed.
The European Commission has confirmed that digital taxation remains on the agenda, especially if global transactions under the OECD did not come to fruition. President Ursula von der Leyen said on June 26 that “all options remain” during a trade debate with the US, including an enforcement mechanism for discriminatory US measures.
Ongoing high-stakes trade negotiations between the US and the EU will reach a deadline of July 9th. This is expected to expire Trump’s 90-day suspension on mutual global tariffs. Trump is threatening to impose new tariffs of up to 50% on major European exports, including cars and steel, if they fail to reach the transaction.
In response to these threats, the EU has created a list of retaliatory tariffs worth up to 95 billion euros ($111.4 billion) for a wide range of US exports, from agricultural products to Boeing aircraft. EU leaders have shown they are defending the bloc’s tax sovereignty, while still open to negotiations.
