Canada just blinked.
In a Sunday night surprise, Ottawa announced it’s scrapping its digital services tax, just one day before the first payments were set to roll in. Why the sudden pivot? To get back on Washington’s good side.
This comes after President Donald Trump abruptly pulled the plug on all trade talks with Canada, slamming the tax as a direct hit on U.S. tech giants. The result? Canada pulled the handbrake, hoping to get trade negotiations back on track ahead of the July 21 timeline agreed at the G7 summit.
1. Trump Fires First, Canada Retreats
2/ Canada’s new Digital Services Tax (DST) goes into effect Monday.
It’s a 3% levy targeting companies like Amazon, Airbnb, and Google.
Trump called it a “blatant attack” on America and its companies.
So he hit back—hard.
— #Rod D. Martin (#@RodDMartin)
8:01 PM • Jun 27, 2025
Trump’s weekend statement sent a clear message: digital taxes on American firms? Not on his watch. Canada’s tax, which included a 3% levy retroactive to 2022 and hit companies like Amazon, Google, and Meta, was about to go live on Monday. That is, until Ottawa hit pause.
The reversal shocked some observers, especially after Canada’s earlier insistence that it would hold firm. But with $762 billion in bilateral goods trade on the line, Ottawa had more to lose.
2. Carney Plays Diplomat
Canadian PM Mark Carney framed the decision as a strategic reset. “Today’s announcement will support a resumption of negotiations,” he said, pointing to the July 21 deadline.
Finance Minister Champagne echoed the sentiment, calling the tax’s removal “vital progress” toward a broader U.S.-Canada economic and security pact.
Still, they’re not giving up total control. Ottawa stressed it will “take as long as necessary, but no longer” to land a comprehensive deal. That’s code for: We’re being flexible, but not forever.
3. Backlash Over Retroactivity
The now-rescinded tax was retroactive, applying all the way back to 2022. That’s where Washington had a real bone to pick. Treasury Secretary Scott Bessent called it “patently unfair,” noting that no EU country had imposed a similar retroactive charge.
Bessent confirmed an investigation was underway to measure the “harm to U.S. companies” and hinted at retaliation. The $2 billion tax estimate was a red flag to U.S. trade officials, and enough to spark real consequences.
4. The Bigger Picture: Global Tax Reform
The digital tax wasn’t just about revenue, it was part of a broader effort to fix outdated tax systems. Canada had long argued that digital titans profited heavily from Canadian consumers without paying their fair share.
But the long-term plan was always to roll these national taxes into a bigger multilateral framework. That’s still in the works, and the U.S. wants it to happen without unilateral moves in the meantime.
5. Markets React to De-Escalation
Markets perked up after the announcement. Risk appetite improved, and the Canadian dollar found some footing. Traders see this as a de-escalation, for now.
The U.S. has already secured limited trade agreements with other partners this month, and a thaw with Canada could be next if both sides keep talking. But any surprise from Trump, or a sudden policy pivot, could quickly put risk assets back on edge.
Here’s the Takeaway:
Canada just traded tax revenue for diplomatic breathing room. The digital tax is off the table, for now, but trade talks remain fragile. For traders watching CAD pairs or tech-heavy indices, this isn’t over.
Trump’s trade team plays hardball, and Canada’s move shows just how fast policy can shift when the pressure hits.
