President Donald Trump announced Friday that he is cutting off trade negotiations with Canada in response to its decision to move forward with a digital services tax, which he described as a “blatant and direct attack” on the U.S.
Posting on his social media platform, Trump said Canada had formally notified the U.S. of its intent to enforce the tax, which targets both domestic and international tech companies engaging with users in Canada. The levy, scheduled to take effect Monday, will impose a 3% charge on revenue earned from Canadian users.
“Because of this outrageous tax, we are immediately ceasing all trade talks with Canada,” Trump wrote. “We’ll announce within seven days the tariff Canada will be required to pay to continue trading with the United States.”
This move marks another shift in Trump’s unpredictable trade agenda since returning to the White House for a second term. U.S.-Canada trade relations have fluctuated, with Trump at times suggesting Canada could be annexed as a U.S. state.
In response, Canadian Prime Minister Mark Carney maintained a diplomatic stance, stating that Canada would continue to engage in negotiations in the interest of its citizens. “It’s a negotiation,” he said.
Trump later told reporters he believes Canada will ultimately scrap the tax. “We have enormous economic leverage over Canada. I’d rather not use it,” he said. “But this won’t end well for them — it was a foolish move.”
When asked what Canada could do to resume talks, Trump replied they could simply cancel the tax. He added, “I think they will, but honestly, it doesn’t matter to me.”
Carney had visited the White House in May for discussions, and during last week’s G7 summit in Alberta, the two leaders agreed to a 30-day timeframe for trade negotiations.
The digital tax will impact major U.S. companies like Amazon, Google, Meta, Uber, and Airbnb, applying retroactively and potentially resulting in a $2 billion bill due at month’s end.
“We commend the administration’s strong stance against Canada’s unfair digital tax on U.S. tech exports,” said Matt Schruers, head of the Computer & Communications Industry Association.
The U.S. and Canada had also been discussing the possible reduction of steep tariffs imposed by Trump, including 50% on steel and aluminum, 25% on automobiles, and a general 10% import tax. These could increase further on July 9 after the expiration of a 90-day negotiation period.
Canada and Mexico have also been subject to tariffs of up to 25%, which Trump has defended as part of his strategy to combat fentanyl trafficking. However, some goods remain protected under the U.S.-Mexico-Canada Agreement (USMCA) signed during Trump’s first term.
After meeting privately with Republican senators, Treasury Secretary Scott Bessent declined to comment on the breakdown of trade talks with Canada, simply stating, “I was in the meeting,” before moving on.
Canada is a vital economic partner for the U.S., supplying about 60% of its crude oil imports and 85% of imported electricity. It is also the top foreign source of steel, aluminum, and uranium for the U.S., and has key minerals that are strategically important to the Pentagon.
Roughly 80% of Canada’s exports are destined for the U.S.
Daniel Béland, a political science professor at McGill University, noted that while the tax is a domestic policy issue, it has long been a point of friction due to its impact on American tech giants.
“The Digital Services Tax Act was passed into law a year ago, so its implementation has been anticipated,” Béland said. “Still, President Trump chose to react dramatically just before it takes effect, injecting tension into already fragile trade talks.”