Talks Resume After Canada Drops Digital Services Tax
Canada has officially withdrawn its controversial 3% Digital Services Tax (DST), paving the way for resumed trade negotiations with the United States. The move comes after intense friction triggered by U.S. President Donald Trump’s insistence on its removal—a diplomatic showdown that originated months earlier and reshaped Canadian politics.
Origins of the Trade Spat: Mar-a-Lago and “51st State” Jabs
The saga began in late November 2024, when President‑elect Trump threatened blanket 25% tariffs on Canadian goods—steel, aluminum and autos—claiming they contributed to America’s trade deficit and funded a surge in fentanyl and illegal migration. In response, former Prime Minister Justin Trudeau flew south for an unannounced dinner at Mar‑a‑Lago. Though Trudeau called the meeting “very productive,” Trump reportedly derided him as a state “Governor,” joked Canadians should “maybe become the 51st state,” and reiterated tariff threats.
Behind the scenes, Trudeau’s handling of Trump’s provocations—including publicly laughing off statehood suggestions—drew fierce criticism at home. Analysts say it undermined his authority and helped fuel political discontent.
Political Fallout: Trudeau Out, Carney In
By early 2025, the political tide in Ottawa had turned. Canada’s economy was strained by Trump-era protectionism, and the Trudeau government was widely blamed for ceding too much ground. When Trudeau stepped aside in January, the Liberals chose former central banker Mark Carney as leader in March—a rallying point for voters seeking toughness and competence in dealing with the United States.
In April’s federal election, Carney campaigned on a platform explicitly defined by resistance to Trump’s trade tactics. “We are over the shock of the American betrayal,” Carney declared. “As I’ve been warning for months, America wants our land, our resources, our water … That will never … ever happen.”. His message resonated: the Liberals reclaimed power, securing a minority government largely on a platform of safeguarding Canadian sovereignty.
Renewed Tensions: The 3% Digital Services Tax
Despite the change in leadership, Canada pressed ahead with its DST, meant to collect C$7.2 billion in five years from U.S. tech giants like Amazon, Google, and Meta. U.S. officials branded it a “blatant attack,” and in late June, Trump again froze trade talks, escalating tariff threats to as high as 50%.
In Ottawa, Finance Minister François‑Philippe Champagne warned that implementation was crucial for fairness in the digital economy. It included broad political backing until U.S. pressure mounted
Resolution and New Negotiations
Today, June 30, 2025, Canada formally rescinded the DST. Prime Minister Carney and President Trump held a conciliatory phone call, and U.S. Commerce Secretary Howard Lutnick praised the move, calling it “essential to resuming vital economic and security discussions.”. Finance Minister Champagne echoed the sentiment: “Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the United States to make vital progress.”
The U.S. side, including Treasury Secretary Scott Bessent, welcomed the turnaround but warned that tariffs could spike if a deal isn’t secured by July 9. A framework agreement is now being pursued ahead of a July 21 deadline set at the G7 summit.
