Trade discussions between the United States and Canada have resumed after Canadian Prime Minister Mark Carney scrapped a proposed digital services tax that would have affected major U.S. tech companies.
U.S. President Donald Trump had paused trade talks with Canada the previous week over its intention to implement the tax, which targeted firms like Amazon, Google, Meta, and Apple. Trump described the proposed levy as “a direct and blatant attack on our country.”
At a Monday press conference, White House Press Secretary Karoline Leavitt stated that Carney had relented under pressure from the U.S. president. “It’s very simple. Prime Minister Carney and Canada caved to President Trump and the United States of America,” she said.
This reversal has thrown U.S.-Canada relations back into uncertainty following a brief period of calm, which had included a cooperative G7 summit earlier in June. During that meeting, leaders from both countries committed to finalizing a new trade deal within 30 days.
Carney’s decision came after a phone conversation with Trump on Sunday. Shortly afterward, the Canadian government announced that it would drop the digital services tax “in anticipation” of a trade agreement.
“Today’s announcement will facilitate the restart of negotiations toward our July 21, 2025, target, set during this month’s G7 Leaders’ Summit in Kananaskis,” Carney said in a statement.
What Was the Digital Services Tax?
The proposed tax was a 3% levy on revenue generated from Canadian users by large digital platforms, affecting firms earning more than $CAD 20 million ($24.5 million) annually in Canada. It would have applied retroactively to 2022, potentially resulting in a $US 2 billion ($3 billion) tax bill for affected U.S. companies.
Canada’s finance ministry confirmed that tax collection would now be halted. A statement noted the tax was initially introduced in 2020 to address the fact that large digital companies profiting from Canadian consumers often paid little or no local tax. However, the statement also affirmed Canada’s preference for a global approach to taxing digital services.
Finance Minister François-Philippe Champagne will introduce legislation to repeal the Digital Services Tax Act.
A Political Win for Trump
According to Daniel Béland, a political scientist at McGill University, Carney’s reversal marks a clear political win for Trump. “Carney acted now to appease President Trump and get him back to the negotiating table — it’s a win for both the White House and big tech,” Béland said.
He added that the decision makes Carney appear susceptible to pressure from Washington. “Trump got exactly what the tech giants wanted,” Béland noted, suggesting U.S. tech leaders would be pleased with the outcome.
Friday’s announcement is the latest development in Trump’s renewed trade battles since retaking office in January.
Relations between the two countries have been strained in recent months, especially after Trump made repeated suggestions that Canada should become the 51st U.S. state, sparking backlash north of the border. Tensions had eased slightly following Carney’s election in March.
The two nations have also been negotiating potential relief from steep tariffs the Trump administration imposed — including 50% on steel and aluminum, 25% on cars, and a general 10% import tax. These tariffs could rise again on July 9, when Trump’s self-imposed 90-day negotiation period ends.
