U.S.-Canada Trade Talks Halted Over Digital Services Tax
The announcement came just hours after the U.S. reported progress in trade discussions with China on rare-earth shipments, with a possible deal on the horizon with India.
President Donald Trump announced the termination of all U.S.-Canada trade talks in response to Canada’s digital services tax (DST) that is due to be paid by U.S. tech firms on Monday.
The tax will mainly impact big tech companies, including Amazon, Apple, and Meta.
In a Truth Social post, Trump said Canada was “copying the European Union” with this tax.
Trump and Canadian Prime Minister Mark Carney met at the G7 summit earlier this month and agreed to continue discussing tariffs within 30 days as part of ongoing U.S.-Canada trade talks.
However, Trump declared yesterday that no further discussions would take place, and that Canada would be informed of the tariffs it must pay to trade with the U.S. within seven days.
Canada is the United States’ second-largest trading partner after Mexico and remains the top buyer of U.S. exports.
Last year, Canada imported $349.9 billion worth of U.S. goods and exported $411.9 billion in goods to the U.S.
The Government of Canada officially enacted the Digital Services Tax (DST) last year, with the law coming into force on June 28, 2024.
The new law targets companies that derive value from Canadian users’ data, content, or online activity, requiring both foreign and domestic businesses with significant digital operations to pay a 3% tax on certain revenues tied to user engagement in Canada.
DST applies to revenue earned from online marketplace services, social media platforms, digital advertising, and the sale or licensing of Canadian user data, provided that both of the following revenue thresholds are met:
The tax, retroactive to 2022, is levied on amounts exceeding the CAD $20 million threshold and is due annually on June 30.
Following Trump’s announcement, the Computer & Communications Industry Association (CCIA) called on the U.S. Trade Representative (USTR) to initiate a Section 301 investigation to protect U.S. tech firms.
According to the CCIA Research Center, the DST would cost U.S. businesses between $900 million and $2.3 billion annually and lead to up to 3,000 American job losses.
From a Canadian standpoint, the Canadian Chamber of Commerce opposed the law's implementation last year, saying, “At a time when Canadians are struggling with affordability, this tax will increase costs for consumers on a variety of everyday products and services that rely on digital platforms.”
With U.S.-Canada trade talks halted and the scope of Trump’s announcement still unclear, U.S. importers must be prepared for potential new duties. If you import goods from Canada, we recommend that you:
At Cole International, we offer trade consulting services to help businesses navigate changes in cross-border trade policies.
We also provide expert guidance and hands-on support on customs regulations to ensure business continuity and facilitate compliance with changing trade requirements.
Please reach out to one of our trade professionals to discuss the impact of this update on your business and how we can help you mitigate potential risks.