In an effort to restart trade talks, Canada will rescind itsDigital Services Tax (DST), a levy on tech revenues generated from Canadian users, which was at the center of the breakdown in negotiations with the U.S. Canadian Finance Minister François-Philippe Champagne announced the move on Sunday night.
President Donald Trump had called the 3% tax “a direct and blatant attack” on the U.S. in a fiery statement on Friday, in which he said he was “terminating” all trade discussionswith his northern neighbor.
The announcement from Canada’s Department of Finance said that negotiations between the countries will now resume, as agreed upon by Trump and Canadian Prime Minister Mark Carney, with a deal expected to be reached by July 21.
“Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the United States to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians,” the statement read.
The news came at the eleventh hour, as the levy was due to go into effect, with a retroactive stipulation, on Monday, June 30. Official legislation is now due to be brought forward to rescind the tax completely.
Negotiations between the U.S. and Canada had broken down in a spectacular manner at the end of last week.
“We are hereby terminating ALL discussions on trade with Canada, effective immediately,” Trump said. “We will let Canada know the tariff that they will be paying to do business with the United States of America within the next seven-day period.”
Trump’s retreat from negotiations followed a long-standing back-and-forth between the two countries on trade, which kickstarted when Trump implemented the application of an additional25% tariff on imports from Canadain February. (Energy resources from Canada received a lower 10% tariff.)
Here's what you need to know about the increasingly tense trade talks:
Trump called Canada “a very difficult country to trade with,” blaming the breakdown in progress on Canada's DST, which was set to go into effect on Monday, June 30 before being halted by Sunday’s announcement.
The Trump Administration had urged Canada to pause or eliminate the tax, which applies to any tech company making more than $15 million from Canadian internet users. In his social media post on Friday, Trump said the U.S. had “just been informed” of the tax. The plan had, in fact, been in place since last year, but the first payments were only due to begin on June 30. The bill worked retroactively, so large tech companies such as Apple, Google, and Meta were in line to be hit with large payments.
“Here's the irony. To me, this looks like a power play from Canada, because they're making it retroactive… so Trump came along and said, ‘No, no more deals—watch and learn,’” James Mohs, an associate professor of accounting, finance, and taxation at the University of New Haven, told TIME over the weekend, ahead of Canada’s DST retreat. He likened the situation to two “bullies” fighting each other on the block to see “who’s the biggest.”
AJune 11 letter from Republican members of the U.S. Congresshad urged Trump to push Canada into pausing the tax.
“If Canada decides to move forward with this unprecedented, retroactive tax, it will set a terrible precedent that will have long-lasting impacts on global tax and trade practices,” said the 21 members of Congress, further arguing that 90% of what Canada would collect under its Digital Services Tax Act would be from U.S. companies.
Trump’s announcement of stalled talks came a week after Canada’s Finance Minister François-Philippe Champagne initially said the country would not delay implementation of the tax.
"This was voted by parliament so we’re going ahead with the DST,"Champagne told reporters on June 19. "[The Digital Services Tax] is not unique to Canada, by the way. Let’s put that into context."
It’s unclear why Champagne performed such a sharp U-turn, but it seems as though the Finance Minister was keen to get trade talks with the U.S. back on track.
“Canada’s new government will always be guided by the overall contribution of any possible agreement to the best interests of Canadian workers and businesses. Today’s announcement will support a resumption of negotiations toward the July 21, 2025, timeline,” Carney said on Sunday night.
In the Oval Office on Friday, Trump told reporters that the U.S. has "all the cards” in its relationship with Canada. "Economically, we have such power over Canada. I'd rather not use it," he seemingly warned.
Speaking to Fox News’ Maria Bartiromo on Friday, for an interview of which the first part aired on Sunday morning, Trump delved into his decision to stop negotiations with Canada, saying the country is “very nasty to deal with.” He stated that the talks would be paused “until such time as they drop certain taxes,” seemingly referring to the DST.
Trump also once again repeated his belief that “Canada should be the 51st state.”
Read More:Does Trump Still Plan to Annex Canada and Make It the 51st State?
Meanwhile, U.S. Treasury Secretary Scott Bessentsaidon Friday that though the Trump Administration knew of the DST, they had hoped that Carney's new Administration would, “as a sign of good will,” pause it.
“We think it's badly unfair to do it retroactively,” Bessent said, stating that U.S. Trade Ambassador Jamieson Greer was likely going to open a301 investigationon the tax, which would have allowed the U.S. Trade Representative (USTR) to investigate any potential harm on U.S. businesses.
Colin Robertson, a former Canadian diplomat and current fellow at the Canadian Global Affairs Institute, told TIME over the weekend that Trump had "thrown a grenade into the negotiations."
“I look at this as part of the negotiating process. Trump is unpredictable, but my guess is that there are those in the U.S. who would like to see an agreement with Canada,” he said. “I think that the interests on both sides are such that an agreement is possible and desirable—certainly [from] the Canadian side, but for the American side, also. I think they want to be able to show the rest of the world you can make a deal with your closest neighbor and ally. And if you can't do it with Canada, who can you do it with?”
This is not dissimilar to how Trump does business, as he prioritizes gaining “as much leverage as he can” before making a deal, Robertson argued, forewarning that a retreat of some sort may lie ahead.
In a brief exchange with reporters on Friday, Carney addressed questions about the breakdown in talks.
"We will continue to conduct these complex negotiations in the best interest of Canadians," he said, firmly.
The Canadian government also retaliated later on Friday,placing a steel quotaon some imports, with a hefty 50% tariff on products that exceed that quota. The measure went into effect immediately, and is set to be reviewed in 30 days.
“This temporary trade measure will help stabilize the Canadian steel market by addressing the risk that steel originally destined for the United States is redirected to Canada,” stated the government’s press release on the measure. “The combination of tariffs imposed by the U.S. on all steel imports and global overcapacity, caused by non-market practices, has led many exporters to seek new markets.”
Robertson noted how this move was “consistent” with what Canada had promised in the past.
“I think that all fits into [how] we had promised we would take action when Trump doubled the tariff from 25% to 50%,” he said, arguing that Canada,as “the biggest steel exporter to the U.S.,”would likely lift these measures if they can get back to a trade agreement. It remains to be seen if Canada will keep this quota in place, even for the next 30 days, now that negotiations with the U.S. are set to resume.
At the G7 summit in Kananaskis, Alberta, Canada, on June 16, Carney had said that he and Trump were working towards finding a trade deal within 30 days, something Trump had agreed was “achievable.” And it seems his hope was well-placed, with talks now seemingly back on track.
Goldy Hyder, CEO of Business Council of Canada,saidthat this back-and-forth between the two countries has only escalated the uncertainty that businesses are already struggling with.
“[Canadian] businesses are intertwined not just with the U.S., but also with Mexico. We have smart people, we have a lot of natural resources,” Hyder told Canada’s CTV News. “We've grown an economy that's working and can continue to grow, but it's challenging because business, of course, likes predictability and certainty, and it doesn't have a nationality that it's attached to.”
Sharing a message to the governments of both the U.S. and Canada, Hyder urged: "Let's not get in our own way here."
But some experts were against Canada rescinding the tax in order to appease Trump.
Julian Karaguesian, a former adviser to Canada’s Ministry of Finance, spoke out toCTVover the weekend, arguing that Canada, as a “natural resource superpower,” could, if backed into a corner, utilize its role as an energy producer and build out other existing trade relationships with India, China, and beyond.
“It's not much at all,” Karaguesian said of the amount of money Canada would have gained from the tax, emphasizing that the charge was not a tariff. “The tax [was] part of our domestic policy, and every sovereign nation has a right to pursue domestic policies.”
