President Trump on Friday abruptly ended trade negotiations with Canada, citing the country’s planned enforcement of a digital services tax on American technology firms as a “blatant attack.” The move adds fresh volatility to one of the United States’ most significant trading relationships, just weeks after both nations appeared close to finalizing a new deal.
Canada’s 3 percent digital services tax, which has technically been law since last year, is only now set to take effect, with payments beginning Monday. Because the tax is retroactive, large U.S. tech companies are expected to pay approximately $2.7 billion in back taxes—prompting a furious response from Washington.
The Trump administration claims the tax unfairly targets American firms such as Google, Apple, and Amazon by taxing revenue from services like online advertising and user data sales, even if the companies are headquartered outside Canada. While other countries have pursued similar taxes, Canada’s timing—combined with the looming payment deadline—has triggered an aggressive retaliation from the White House.
Trump warned that Canada would soon learn “what they have to pay to do business in the United States,” suggesting new tariffs may be announced within the week. Canadian officials, including Prime Minister Mark Carney, have so far avoided direct confrontation, reiterating their intent to negotiate “in the best interests of Canadian workers and businesses.”
The fallout comes at a fragile moment. Earlier this month, Canada and the U.S. signaled they were within 30 days of finalizing a trade deal, having met during the G7 summit in Alberta. But Friday’s declaration returned Canada to what Trump called the “penalty box,” threatening economic consequences on both sides of the border.
Trump’s approach echoes earlier trade disputes from his first term, when he imposed steep tariffs on steel, aluminum, and other goods while frequently threatening “reciprocal” taxes on nations deemed to be disadvantaging American firms. This latest standoff could disrupt supply chains, inflate import costs, and rattle markets—though the S&P 500 shrugged off the news and reached a record high Friday.
The broader effort to reach global agreement on taxing multinational corporations has faltered in recent months. While the G7 agreement on minimum corporate tax rates advanced, it left out digital services taxes, leaving countries like Canada to proceed unilaterally. Efforts in Washington to pass a so-called “revenge tax” targeting such nations were recently scrapped following investor backlash.
Still, the threat of a tariff escalation looms. Trump’s administration had promised 90 new trade deals in a 90-day window, a goal it has failed to meet. With a self-imposed deadline approaching, Canada may not be the last target.
Whether this latest rupture derails broader North American trade stability remains to be seen. But with retroactive tax bills landing and a president eager to flex economic leverage, businesses on both sides of the border are bracing for impact.