In a dramatic shift aimed at salvaging trade negotiations, Canada has abandoned its contentious digital services tax just hours before it was set to take effect, reopening a vital channel of dialogue with the United States after days of escalating tensions, reported by Reuters.
The digital tax, which would have imposed a 3% levy on revenue earned by major tech firms like Amazon, Google, Meta, and Apple from Canadian users, was suspended late Sunday by Prime Minister Mark Carney’s government. The move followed intense pressure from Washington and a personal appeal from former President Donald Trump during the recent G7 summit in Canada.
White House economic adviser Kevin Hassett confirmed that trade talks would resume “immediately,” crediting Ottawa’s decision for breaking the impasse. “It’s something they’ve studied, now they’ve agreed to, and for sure, that means we can get back to the negotiations,” Hassett said on Fox News.
Trump had abruptly called off talks with Canada on Friday, denouncing the tax as a “blatant attack” on American innovation and threatening retaliatory tariffs within a week. U.S. Commerce Secretary Howard Lutnick hailed Canada’s reversal on X, saying, “Thank you Canada for removing your Digital Services Tax… it would have been a deal breaker.”
Markets responded swiftly to the diplomatic thaw. Wall Street hit record highs Monday morning, buoyed by optimism over a renewed trade push with key partners, including Canada. Treasury Secretary Scott Bessent added momentum, predicting “a flurry” of trade deals before a critical July 9 deadline, after which punitive tariffs ranging from 11% to 50% could snap back into place.
Despite the reprieve, the warning remained clear. “There may not be extensions,” Bessent told Bloomberg Television, noting that decisions rest solely with Trump.
Carney and Trump have pledged to finalize a new agreement by July 21. Still, Carney’s reversal sparked criticism at home. Conservative leader Pierre Poilievre urged Carney to “put Canada First,” while policy experts questioned the political cost of retreating from a campaign promise to resist U.S. pressure.
Canadian business groups, however, welcomed the move, citing the risk of higher costs for consumers and disruption to cross-border trade. Canada remains America’s second-largest trading partner and its biggest export market.
Finance Minister Francois-Philippe Champagne is expected to introduce legislation to formally repeal the tax in the coming weeks.
