New Delhi: US President Donald Trump abruptly froze commerce talks with Canada this week as a result of Ottawa plans to start accumulating a digital tax from huge expertise corporations, together with American giants like Google, Amazon, Meta and Uber. Trump didn’t maintain again. In a submit on his Reality Social platform, he referred to as the tax a “direct and blatant assault on our nation”.
He mentioned america would reply inside days with contemporary tariffs on Canadian items.
The transfer didn’t come out of nowhere. Quietly handed in June 2024, the Canadian legislation costs a 3% levy on digital companies income earned from Canadian customers. It applies to tech corporations making over $820 million globally and greater than $14.7 million inside Canada.
Right here’s what actually raised eyebrows – the tax just isn’t solely forward-looking however retroactive to January 2022.
Meaning US corporations may very well be hit with practically $2 billion in backdated payments. Trump’s response was quick and loud. “We’re terminating all discussions on commerce with Canada. They are going to know the brand new tariffs they are going to be paying to do enterprise with america inside seven days,” he wrote on Friday.
On the White Home, Trump doubled down. “We maintain all of the playing cards. Canada made a silly transfer,” he mentioned.
The US is Canada’s high commerce companion. Over 80% of Canadian exports go south of the border. In 2024, that commerce relationship was price over $762 billion. Any disruption, particularly in sectors like vitality, minerals and vehicles, may go away a dent on either side.
Canadian Prime Minister Mark Carney, who took workplace simply three months in the past, now finds himself caught between two fires. At dwelling, enterprise leaders are asking him to drop the tax to keep away from financial fallout. Overseas, Trump’s threats are rising louder.
Nonetheless, Carney has not blinked. His workplace mentioned on Friday that Canada “will proceed to have interaction in negotiations in the very best pursuits of Canadian employees and companies”.
The tax had been within the pipeline since 2019. However Ottawa delayed implementation in hopes of a worldwide deal via the OECD. That deal by no means got here. So Canada went forward.
Washington sees it in another way. Lawmakers from each events had already warned that this tax would open the door to retaliatory measures. Twenty-one members of the Congress just lately urged Trump to push again.
The U.S. president is now doing precisely that. His workforce says a Part 301 probe is underway to evaluate how the tax hurts American corporations. Such probes can result in punitive actions like those Trump beforehand used towards China and France.
Canada just isn’t alone in focusing on huge tech’s abroad earnings. France, the UK, India, Italy, Austria and even Indonesia have rolled out comparable taxes. Most cost 2% to five%. Some, like France’s 3% levy, additionally stirred backlash from Washington.
The European Union (EU) is watching this drama unfold with unease. Their talks with america are nearing a July 9 deadline. If no deal is reached, Trump has mentioned he’ll hit European exports – vehicles and metal specifically – with new tariffs as much as 50%.
The EU has drawn up a $111 billion checklist of retaliatory tariffs.
Again in Ottawa, enterprise leaders say Canada is enjoying a harmful sport. The Enterprise Council of Canada warned this week that the brand new tax dangers a significant fallout. “Canada ought to instantly suggest dropping the DST in trade for lifting US tariffs,” they mentioned.
However Carney appears decided to stay to his path. The primary funds are due on Monday. And until one thing adjustments quickly, a commerce battle could also be subsequent.