Canada scraps digital services tax after Trump’s trade threats. Carney calls it part of broader U.S. deal; critics slam move as retreat under pressure.
Canadian Government Drops Tech Tax After Trump’s Warning
In a major reversal, Canadian Prime Minister Mark Carney has announced the cancellation of the country’s digital services tax (DST), just days after U.S. President Donald Trump halted trade talks and threatened retaliatory tariffs.
Backchannel Talks and Sudden Turnaround
According to White House Press Secretary Karoline Leavitt, Carney contacted Trump on Sunday evening to confirm that Canada would abandon its plan to impose a 3% tax on the Canadian revenues of U.S. tech giants such as Amazon, Google, Meta, and Apple. The tax, originally introduced in 2020, was scheduled for implementation on July 1 and had already begun to accrue retroactively from January 2022.
Negotiation, Not Capitulation, Says Ottawa
In a press briefing Monday, Carney described the move as “part of a bigger negotiation,” confirming that formal trade talks between Washington and Ottawa had resumed that morning. “It is something we expected would be included in a broader deal,” Carney said. The Canadian government has halted collection efforts and is preparing legislation to formally rescind the DST.
U.S. Celebrates Victory for Big Tech
White House economic adviser Kevin Hassett confirmed the resumption of negotiations, while Leavitt hailed the removal of the DST as “a big victory for our tech companies and workers.” She added, “President Trump knows how to negotiate… every country on the planet needs to have a good relationship with the U.S.”
U.S. Commerce Secretary Howard Lutnick echoed the sentiment on X (formerly Twitter), calling the tax “a deal-breaker” and thanking Canada for backing down.
Domestic Criticism Over Canada’s Retreat
Back home, the decision drew sharp criticism from opposition leader Pierre Poilievre. The Conservative Party head accused Carney of abandoning Canada’s economic interests, saying he “put his elbows down,” a jab at the Liberals’ campaign rhetoric of going “elbows up” against Trump. Poilievre called for hardline counter-demands, including immediate removal of U.S. softwood lumber tariffs.
Billions at Stake in Tax and Trade
The digital tax was expected to generate C$5.9 billion over five years, costing U.S. firms more than C$2 billion in its first year alone. Finance Minister François-Philippe Champagne stressed that the tax had aimed to address revenue losses from digital multinationals operating in Canada with limited tax obligations. He added that Canada preferred a multilateral tax framework but had acted unilaterally due to global delays.
A Larger Power Play on the Global Stage
As other countries like the U.K. pursue similar taxation of global tech firms, Canada’s abrupt policy reversal underscores the challenges mid-sized economies face when confronting U.S. trade leverage. While Canada seeks a renewed economic pact with its largest trading partner, critics warn that early concessions may set a troubling precedent.
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