President Donald Trump has abruptly ended all trade negotiations with Canada, escalating tensions between the two close allies after Ottawa moved forward with a digital services tax targeting large American technology firms.
In a fiery post on Truth Social Friday, Trump accused Canada of imposing a “direct and blatant attack on our country,” adding that the United States would “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.”
“We have just been informed that Canada, a very difficult Country to TRADE with… has just announced that they are putting a Digital Services Tax on our American Technology Companies,” Trump wrote. “They are obviously copying the European Union… Based on this egregious tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately.”
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Trump later doubled down on his stance during comments in the Oval Office, saying the U.S. would “stop all negotiations with Canada right now until they straighten out their act.” He accused the Canadian government of being “foolish” for proceeding with the tax, warning, “We have such power over Canada.”
Canada’s Digital Services Tax
At the heart of the dispute is Canada’s Digital Services Tax (DST), passed last year but only now set to take effect, retroactive to 2022. The DST is aimed at large digital corporations generating revenue from Canadian users—most notably U.S. tech giants like Amazon, Google, and Meta.
Canada’s decision to proceed with the tax has stirred sharp criticism from Washington. Treasury Secretary Scott Bessent said Friday on CNBC that the retroactive component of the tax was “patently unfair” and warned that it would provoke further action from the Trump administration.
Bessent said U.S. Trade Representative Jamieson Greer is preparing to launch a Section 301 investigation, a powerful tool under U.S. trade law typically used to combat unfair foreign practices. A similar process was used during Trump’s first term to justify sweeping tariffs on Chinese imports.
The breakdown in talks places an enormous strain on one of America’s most important trading relationships. Canada and the United States traded over $762 billion in goods in 2023, according to USTR data. The countries, both part of the USMCA (United States-Mexico-Canada Agreement), had maintained relatively stable trade ties with each other until now, despite other disagreements in recent years.
Trump has long criticized Canada over agriculture tariffs, particularly its protectionist dairy sector, claiming U.S. farmers face unfair barriers. In his statement Friday, Trump revived those grievances, accusing Canada of imposing “as much as 400% tariffs” on American dairy products.
The Canadian government, led by Prime Minister Mark Carney, has not yet responded publicly to Trump’s declaration. Earlier this month, Canadian officials reaffirmed that they would not pause implementation of the digital services tax, despite fierce lobbying from Washington.
Political and Market Fallout
The announcement had immediate ripple effects on Wall Street. The S&P 500 and the Nasdaq Composite—which had both hit record highs earlier in the day—turned negative following Trump’s statement. Analysts say tech stocks in particular are sensitive to regulatory and tax policies in foreign markets.
Trump’s decision also comes amid mounting U.S.-EU tensions over similar digital tax policies. The EU has long pushed for tech firms to pay more taxes in the regions where they derive revenue, rather than where they are headquartered. The Trump administration views such moves as discriminatory and protectionist, with officials warning of broader trade retaliation.
In April, the European Union said it was “keeping all options on the table” if it failed to resolve tariff tensions with Trump, signaling that tech regulation may be used as leverage in broader trade disputes.
With trade talks off the table and tariffs looming, Washington is now preparing for a possible escalation. A Section 301 probe could result in punitive tariffs on Canadian exports, potentially impacting sectors like automotive, lumber, and agriculture—key pillars of Canada’s economy.
