Canada has backed away from a planned digital services tax that targeted American tech firms, following strong threats of retaliation from former U.S. president Donald Trump.
The tax, expected to take effect Monday, would have impacted firms such as Google and Amazon. But on Sunday, Finance Minister Chrystia Freeland announced the tax had been rescinded to avoid sparking a broader trade war.
Trump, in a social media post Friday, called the tax “a direct and blatant attack on our country.” He warned that if Canada proceeded, new tariffs on exports would follow within a week.
At present, U.S. tariffs include a 25% duty on Canadian goods not covered under the USMCA, and a 50% tax on Canadian aluminum and steel.
Canada’s official statement said the decision was made “in anticipation of a mutually beneficial comprehensive trade arrangement with the United States.” Negotiations are now expected to resume, aiming for a new deal by July 21.
This clash forms part of a larger U.S. strategy to complete major trade deals before July 9, when Trump’s administration plans to activate sweeping new tariffs against numerous countries.
Trump paused the tariffs in April, granting a 90-day window for talks. He has hinted at a possible extension but said it might not be necessary.
Treasury Secretary Scott Bessent added that the administration is aiming to conclude trade negotiations with top partners by Labour Day.
The stock market dipped sharply when Trump first announced the tariff plan in April. However, markets have since recovered amid hopes of a negotiated resolution.
Canada’s decision to abandon the digital tax highlights its focus on protecting trade stability with its largest partner, even as political tensions rise.
