President Trump on Friday called Canada’s digital service taxes a “blatant attack” on U.S. technology firms.
Credit...Pete Marovich for The New York Times

Trump Says U.S. Ending Trade Talks With Canada Over Digital Services Taxes

The president said he would cease negotiations and impose new tariffs because of Canada’s imminent, new digital services taxes.

by · NY Times

President Trump on Friday said that the United States would terminate all trade discussions with Canada, “effective immediately,” over the country’s plan to begin collecting digital services taxes from U.S. technology giants.

Mr. Trump described those taxes as a “blatant attack,” and promised on social media that he would inform Canada within the next seven days about the duties “they will be paying to do business with the United States of America.”

In ceasing talks, Mr. Trump once again upended the increasingly fraught relationship between the United States and Canada, which has traditionally been one of America’s closest allies and largest trading partners.

Those relations had seemed to be improving after Canada’s new prime minister, Mark Carney, took office. The two nations even appeared to be on track to announce a trade deal in July, having huddled at length earlier this month on the sidelines of the Group of 7 summit, which was hosted in Alberta.

But on Friday, Mr. Trump signaled that Canada was back in the penalty box.

“We have all the cards. We have every single one,” Mr. Trump said in the Oval Office, adding that “economically we have such power over Canada.”

Canadian officials did not respond to requests for comment on whether Mr. Carney would try to call Mr. Trump or step back from collecting the digital tax. But Mr. Carney’s office said in a statement that his government would “continue to engage in these complex negotiations with the United States in the best interests of Canadian workers and businesses.”

A decision by Mr. Trump to follow through and increase tariffs on a North American neighbor could unleash chaos on both sides of the border, with U.S. companies and consumers facing the brunt of higher import costs. Financial markets briefly recoiled over the breakdown in negotiations, though the S&P 500 recovered and reached a new high Friday.

Canada’s 3 percent digital services tax has been in place since last year, but the first payments are only due beginning on Monday. Because the tax is retroactive, American companies were preparing to turn over roughly $2.7 billion to the Canadian government, according to a trade group for large American tech companies.

U.S. officials from both parties have long chafed at taxes like the one Canada has imposed, calling them unfairly targeted at services provided by American companies like Google, Apple and Amazon. The foreign policies target the revenue that businesses earn from online advertising, the sale of user data and other services, even if the firm is headquartered elsewhere.

Countries around the world have pursued them as a way to capture revenue from the largely American companies that play increasingly important roles in their economies.

On Friday, Mr. Trump singled out Europe, where several countries have imposed versions of the tax, describing them as “very nasty.” But he did not suggest that he planned to halt ongoing trade negotiations with the European Union.

To try and defuse the threat of major new taxes on American companies and economic conflicts, officials have, in the past, worked to reach broad, multilateral agreements on international corporation taxation. Canada and the United States now appear headed to a much more direct confrontation over the issue.

The U.S. government has previously announced a 25 percent tariff on all Canadian exports, except for those that are subject to a trade deal with Canada and Mexico brokered during Mr. Trump’s first term. Like other countries, Canada is also subject to a 50 percent tariff on its exports of steel and aluminum.

Mr. Trump has frequently brandished imminent plans to penalize other countries with high levies, only to later back down, especially if markets panic over the potential interruptions to commerce. The president’s newest threat arrived just weeks before he is expected to reimpose sky-high tariffs on nearly every U.S. trading partner — a set of so-called “reciprocal” rates that he first announced, and quickly suspended, in early April.

Mr. Trump and his top aides initially pledged to broker 90 deals during that 90-day window, though the administration has made minimal progress toward that goal. Earlier Friday, Treasury Secretary Scott Bessent signaled new flexibility in the deadline, suggesting the administration hopes to complete much of its work on trade by Labor Day.

“We have 200 countries, you could say 200 countries plus, we can’t do that,” the president said later during a news conference at the White House. “So, at a certain point, over the next week and a half or so or maybe before, we’re going to send out a letter. We talked to many of the countries, and we’re just going to tell them what they have to pay to do business in the United States.”

Canada and the United States had announced earlier this month that they would get to a new trade deal “within 30 days” — namely, around July 20. But despite the friendly atmosphere and obvious gestures that show Mr. Trump likes Mr. Carney, there were signs that the trade talks were far from uncomplicated.

The digital services tax is only one of many problems in the trade relationship between the two nations. At various points in time, Mr. Trump has complained about barriers for American companies to compete in the country’s dairy and banking sectors, for example. Mr. Trump has also repeatedly flirted with the concept of Canada becoming the 51st state, an idea Canadian officials have repeatedly rejected.

“I think it’s a much better deal for Canada, but you know, it’s up to them. They’re going to have to pay a lot of tariffs, and they’re going to have to pay a lot of money for the dome,” he said, referring to his offer to include Canada in his air defense system known as Golden Dome, in exchange for $71 billion.

In recent days, though, the Trump administration had appeared to back off its other aggressive threats to hit back at countries for their plans to tax American companies. For weeks, Republican lawmakers had planned to include a new, so-called “revenge tax” aimed at deterring countries like Canada from targeting American corporations with new taxes.

The Republican provision would have targeted companies based in countries that collect taxes the United States considers discriminatory against American firms, including digital services taxes. But Wall Street investors panicked over the revenge tax, and Mr. Bessent ultimately asked Congress to strip out the provision after he reached a deal with advanced economies to spare American companies from a separate set of foreign taxes.

The Group of 7 agreement on corporate taxation did not extend to digital services taxes, and the Canadian government has for weeks held firm on their desire to collect money from American firms with the levy.

François-Philippe Champagne, Canada’s finance minister, said last week that the Canadian government had explained the tax to American counterparts in “fairly long, extensive discussions” at the Group of 7 summit, and previously during meetings in Washington.

“We’re going to continue to have these discussions and make our case,” Mr. Champagne told reporters in Ottawa.

Vjosa Isai and Ana Swanson contributed reporting.

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