The US President, Donald Trump, announced that he is halting trade negotiations with Canada in response to taxes affecting US tech companies, stating that Ottawa will be informed of their new tariff rate within a week.
Mr. Trump was addressing Canada’s digital services tax, enacted last year and projected to yield Can$5.9 billion (US$4.2 billion) over the next five years.
Although the measure isn’t new, the Computer & Communications Industry Association recently highlighted that US service providers will be “on the hook for a multi-billion dollar payment in Canada” by June 30.
This three percent tax impacts large or multinational corporations including Alphabet, Amazon, and Meta that deliver digital services to Canadians, and previously, Washington has sought dispute resolution discussions regarding this issue.
While Canada has escaped some of Mr. Trump’s broad tariffs, it is subject to an alternative tariff regimen.
Mr. Trump has also implemented significant tariffs on steel, aluminum, and automobile imports.
Last week, Canadian Prime Minister Mark Carney indicated that Ottawa would modify its 25% counter-tariffs on US steel and aluminum—originally in response to a doubling of US tariffs on these metals to 50%—if a bilateral trade agreement is not finalized within 30 days.
“We will continue to conduct these complex negotiations in the best interest of Canadians,” Mr. Carney stated yesterday, while also noting he had not communicated with Mr. Trump that day.
Canadian Prime Minister Mark Carney said they would modify the counter-tariffs on US steel and aluminum.
US Treasury Secretary Scott Bessent informed CNBC that Washington had anticipated Mr. Carney’s administration would retract the tax “as a sign of goodwill.”
He now expects US Trade Representative Jamieson Greer to initiate an investigation into the damages caused by Canada’s digital tax.
Progress with China
The timing of Mr. Trump’s remarks about Canada coincided with the announcement from Washington and Beijing on finalizing a framework to proceed with trade discussions.
A key goal for Washington in negotiations with Beijing was to secure the supply of rare earth elements, vital for products like electric vehicles, hard drives, and national defense systems.
China, which holds a dominant position in global production of these elements, began mandating export licenses in early April, a move seen as a response to Mr. Trump’s aggressive tariffs.
Following talks in Geneva in May, both parties agreed to temporarily ease the steep reciprocal duties on their respective products.
US Treasury Secretary Scott Bessent stated that the country had hoped Canada would rescind the tax.
China also pledged to alleviate certain non-tariff countermeasures, but US officials later accused Beijing of breaching the agreement and delaying export license approvals for rare earths.
Ultimately, both parties reached consensus on a framework to advance their Geneva agreement after discussions in London this month.
An official from the White House informed AFP on Thursday that the Trump administration and China had “agreed to an additional understanding for a framework to implement the Geneva agreement.”
This clarification occurred after the US president mentioned at an event that Washington had secured a trade deal with China, though specifics were not disclosed.
Under the agreement, China “will review and approve applications for export-controlled items that meet legal requirements,” as stated by China’s commerce ministry.
“The US side will accordingly cancel a series of restrictive measures against China,” it added.
Upcoming Agreements
Numerous economies, excluding China, face a deadline of July 9 for the implementation of steeper duties—escalating from the current 10%.
It remains uncertain whether countries will successfully negotiate agreements to avert these duties before the deadline.
Regarding discussions with the European Union, Mr. Trump remarked at the White House on Friday: “We have the cards. We have the cards far more than they do.”
However, Mr. Bessent indicated that Washington might finalize its trade deal agenda by September, suggesting that additional agreements could be reached, although discussions are likely to continue past July.
Mr. Bessent told Fox Business that there are 18 key partners Washington is concentrating on for agreements.
“If we can finalize 10 or 12 of the important 18, there are another important 20 relationships, then I think we could have trade wrapped up by Labor Day,” Mr. Bessent noted, referring to the US holiday on September 1.
Wall Street’s major indexes closed at new record highs as markets celebrated advancements in US-China trade while downplaying concerns regarding Canada.
