Trump Suspends US-Canada Trade Talks Over 3% Digital Tax

In a sudden move on Friday, President Donald Trump announced that the United States would immediately suspend all ongoing trade negotiations with Canada. This decision comes in response to Canada’s plan to begin collecting digital service taxes from major US technology companies. Trump, in a statement, declared that the United States would no longer engage in any trade or exports with Canada, citing the country's high tariffs and levies, which he claimed have unfairly targeted American farmers and businesses.

Trump specifically highlighted Canada’s 400% tariffs on dairy products and the newly announced digital service tax on American companies, which he described as a “blatant attack” on the United States. He took to social media to declare his intention to notify Canada within a week of new tariffs it would face for doing business with the US. This move has put a significant strain on the relationship between the two nations, which had been slowly recovering under Canada's new Prime Minister, Mark Carney. Both sides had hinted at the possibility of a fresh trade arrangement during the recent G7 summit in Alberta, but Trump’s latest remarks have thrown those hopes into disarray.

Trump asserted that the United States holds all the cards in this economic standoff, claiming overwhelming leverage over Canada. Canadian officials have yet to formally respond, though Carney’s office issued a statement reaffirming Canada’s commitment to pursuing negotiations that safeguard the interest of Canadian workers and businesses. The dispute centers around a 3% digital services tax that Canada introduced last year, targeting revenues from online advertising, user data sales, and other digital services. This tax is retroactive, meaning US tech companies like Google, Amazon, and Apple are expected to pay nearly $2.7 billion starting Monday.

American lawmakers, both Republican and Democrat, have criticized such taxes as discriminatory against US firms. While other countries have implemented similar levies, the Canadian version is now front and center in this transatlantic standoff. Trump did take a jab at European nations, calling their tax policies “very nasty,” but stopped short of threatening an end to negotiations with the European Union. If Trump follows through with imposing new tariffs, the economic consequences could be significant. Higher impact costs would likely hit US consumers and businesses hard, particularly in industries tied closely to cross-border trade.

Currently, Canadian exports to the US already face a 25% tariff unless covered under a previous trade agreement negotiated during Trump’s first term. Steel and aluminum exports are also taxed at 50%. Trump often floated tariff threats as bargaining tools, sometimes backing down when markets reacted negatively. The newest threat by President Donald Trump has arrived just the week before he is expected to re-impose the higher tariffs on every trading partner– which is a set of so-called “reciprocal” rates that he first announced, and quickly suspended, in early April.

Despite mounting pressure, Canada’s government has remained firm. Finance Minister François- Philippe Champagne said last week that the counter tax part was explained to the American Government by the Canadian Government in a “fairly long, extensive discussion” at the G7 Summit, and previously during the meeting in Washington. Meanwhile, efforts by the Trump administration to introduce a retaliatory “revenge tax”-- targeting companies from countries imposing such levies – have largely fizzled out after opposition from investors. Treasury Secretary, Scott Bessent urged Congress to drop the plan, citing an agreement with developed economies to avoid overlapping tax burdens on US Firms.

Still, the broader international agreement on corporate taxation, shaped by the G7, does not cover digital services taxes– keeping the Canada-Us friction very much alive. While the digital tax is the flashpoint, it’s far from the only tension point in US- Canada trade relations. Trump has previously voiced frustrations over Canadian regulations on the farmers, dairy products and banking industries up to 400% tariffs and even made controversial comments suggesting Canada should consider becoming the 51st US state – an idea Canadian traders have finally rejected. He also floated the idea of including Canada in the US air defense system, dubbed the “Golden Dome” in exchange for a $71 billion contribution– a proposal not well received in Ottawa.