Canada’s move to scrap the digital services tax helps trade talks with the U.S., but Trump may now target supply management and dairy protections next.
Surprise Reversal Clears Path for Trade Talks
In a sudden shift, Canada scrapped its planned digital services tax (DST) just one day before implementation, a move that surprised many in Ottawa. The tax had drawn sharp criticism from U.S. President Donald Trump and major American tech firms like Amazon and Meta. By removing the tax, Canadian officials helped avoid an immediate trade setback and kept negotiations with the U.S. on track ahead of the July 21 trade deal deadline.
Rising Pressure on Dairy Protections
While the DST decision earned praise from U.S. officials, it may have opened the door to a renewed American push against Canada’s supply-managed dairy sector. Trump, who has long criticized what he calls excessive tariffs on U.S. dairy exports, claimed on Friday that Canada imposes a 400% tariff—though such rates only apply when quotas are exceeded. Analysts warn the U.S. could now demand changes to Canada’s dairy system in upcoming trade talks.
Parliament Faces Legal and Political Hurdles
Canada’s recently passed Bill C-202 complicates the trade landscape. The law forbids using supply management as a bargaining chip in trade deals, creating a potential standoff if Trump insists on dairy concessions. Sponsored by Bloc Québécois Leader Yves-François Blanchet, the bill protects Quebec’s dairy sector and has support across party lines, but critics say it limits Ottawa’s flexibility at the negotiating table.
U.S. Signals Aggressive Trade Stance
U.S. officials responded positively to Canada’s removal of the DST. Trump’s trade representative called the tax a “deal-breaker,” and the White House signaled satisfaction with Canada’s reversal. However, U.S. Ambassador Pete Hoekstra suggested Prime Minister Carney may still push Parliament to revisit supply management if it stands in the way of a broader trade agreement.
Domestic Politics Could Derail Concessions
Experts caution that any attempt to compromise on supply management could have serious political consequences for Carney’s minority government. Quebec and rural Ontario remain politically sensitive regions where dairy policy plays a significant role. “This is dangerous territory,” said Asa McKercher, a U.S.-Canada relations scholar at St. Francis Xavier University. “This could create a lot of political headaches.”
Countdown to July 21 Deadline
With less than three weeks to reach a new Canada-U.S. trade agreement, Carney’s government faces a high-stakes balancing act. Political analyst Lori Turnbull says the key question is whether Trump’s administration will see the DST reversal as enough — or demand more. “Is this going to be enough for him for a little while? How long?” she asked, noting that the window for a comprehensive economic and security pact may be closing fast.
Future of Trade Relations Remains Uncertain
As negotiations continue, both governments face domestic and international pressures. Trump may seek additional wins ahead of the U.S. election cycle, while Carney must defend Canadian industries and hold together a fragile political coalition. Whether the trade talks succeed or stall may hinge on whether Canada’s dairy system once again becomes a flashpoint in cross-border relations.
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