Washington: In a dramatic escalation of economic tensions between the United States and Canada, President Donald Trump announced that all ongoing trade negotiations with Ottawa have been placed on indefinite hold. The move comes in direct response to Canada’s newly implemented digital services tax, which targets major American technology companies operating north of the border.
During a televised interview on Fox News Sunday, President Trump declared that Canada must eliminate the tax before any further negotiations resume, accusing the Canadian government of unfairly targeting U.S. firms such as Apple, Amazon, Google, and Microsoft. “We are halting negotiations until such time as they drop certain taxes,” Trump stated firmly, warning that the U.S. is prepared to impose retaliatory tariffs within the week if Canada fails to comply.
The Canadian digital tax, passed in June 2024, imposes a 3% levy on revenues from digital services exceeding C$20 million and is expected to generate roughly US $2 billion annually from largely American-owned firms. The tax has been a point of contention for months, with Washington repeatedly calling it discriminatory and threatening economic retaliation.
Despite U.S. protests, Canadian authorities have defended the measure as a sovereign decision aimed at ensuring fair taxation in the digital economy. Canadian Prime Minister Mark Carney responded cautiously to Trump’s remarks, stating that Canada's policies reflect the need to modernize its tax system in light of the global digital transformation. He also reiterated that Canada is committed to “fair and balanced trade relations” and said any retaliatory action would be met with appropriate responses.
The suspension of talks marks a serious setback in North American economic relations, especially as both countries were reportedly close to resolving broader trade issues, including critical mineral supply chain agreements. U.S. Treasury Secretary Scott Bessent had recently indicated that a framework was forming to resolve tariff disputes and improve cross-border cooperation. However, Trump’s unexpected declaration has now thrown those efforts into uncertainty.
U.S. industry groups reacted with mixed responses. While some applauded Trump for taking a hard line to protect American corporate interests, others warned that further escalation could harm small businesses, disrupt digital commerce, and complicate supply chains. Wall Street responded cautiously, with tech-heavy indices showing modest dips following the announcement, though markets remained broadly stable on hopes of Federal Reserve rate cuts.
Meanwhile, international observers note that the breakdown of trade dialogue over a digital tax could set a global precedent. With several other nations exploring similar taxes on digital giants, Washington's strong stance may influence negotiations in Europe and Asia, where U.S. firms also face growing scrutiny.
The Trump administration has not issued a formal timeline for resuming discussions, but sources suggest that new tariffs potentially targeting Canadian steel, aluminum, or agricultural exports could be unveiled as early as next week if no resolution is reached. The White House has yet to offer specifics, while the Canadian Ministry of Finance maintains that the tax will remain unless a broader multilateral solution emerges through OECD negotiations.
With diplomatic channels strained and economic interests colliding, the once-stable U.S.–Canada trade relationship now faces a fresh round of tensions that could ripple across global markets.