Stocks Edge Higher Despite Trade Shock as Trump Ends Talks with Canada

U.S. stocks closed higher Friday, brushing off geopolitical tensions after President Donald Trump abruptly ended trade discussions with Canada in response to that country’s new digital services tax. The Dow Jones Industrial Average rose 432.43 points, or 1.00%, to 43,819.39. The Nasdaq Composite gained 105.54 points, or 0.52%, to 20,273.5, while the S&P 500 added 32.11 points, or 0.52%, to finish at 6,173.13.

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Markets digested the day’s largest geopolitical development: a social media announcement by President Trump declaring a halt to all trade negotiations with Canada. The move came after Canada revealed plans to implement a 3% digital services tax on U.S. technology firms, prompting Trump to denounce the measure as 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 posted Friday on Truth Social, adding that Canada would be informed of new tariffs “within the next seven day period”

The policy announcement follows growing concern among U.S. technology firms and trade analysts. The Computer & Communications Industry Association (CCIA) has urged the U.S. Trade Representative to initiate a Section 301 investigation into Canada’s digital tax, which takes effect June 30. The levy targets digital revenue exceeding CAD 20 million ($14.6 million) from Canadian users and will apply retroactively to 2022 earnings.

Despite the escalation, equity markets showed resilience. “Maybe the administration has outsmarted all of us,” wrote Apollo Global Management Chief Economist Torsten Sløk in The Daily Spark, suggesting Trump’s broader tariff regime—launched in April and dubbed “Liberation Day”—may be a long-term strategy to boost U.S. leverage and tax revenue.

Sløk cautioned, however, that tariffs remain a stagflationary risk. Apollo raised its recession forecast to 25% over the next 12 months, citing deteriorating consumer confidence, reduced corporate investment, and unstable earnings forecasts.

Oil prices declined slightly, with West Texas Intermediate crude for August delivery settling at $65.08 a barrel, down 0.16 cents or 0.25%, amid broader concerns about slowing global trade.

Looking ahead, investors will remain focused on upcoming inflation data and the Federal Reserve’s policy path. While May’s Personal Consumption Expenditures (PCE) report showed a modest uptick in core inflation, dovish remarks from Minneapolis Fed President Neel Kashkari have helped temper market anxiety. Kashkari reiterated that “September remains a plausible starting point for rate cuts,” even as the Fed remains cautious amid evolving trade and inflation dynamics.