U.S. President Donald Trump abruptly broke off trade talks with Canada Friday afternoon.Sean Kilpatrick/The Canadian Press
U.S. President Donald Trump says he is ending trade talks with Canada and will impose additional tariffs within a week in retaliation for Ottawa’s digital services tax.
Mr. Trump abruptly announced on Friday afternoon that he was walking away from the bargaining table in a seeming bid to ramp up pressure in the negotiations as the clock ticks down to his and Prime Minister Mark Carney’s self-imposed mid-July deadline for a deal.
“Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately,” the President wrote on Truth Social. “We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period.”
Canada passed the digital services tax last year with the first payments due on Monday. The tax, modelled on similar levies by European countries, places a 3-per-cent charge on services provided by major technology companies in Canada. U.S. giants such as Amazon, Google, Facebook, Uber and Airbnb are expected to be affected.
Although the tax’s implementation date has long been public – and the subject of much discussion in U.S. business circles – Mr. Trump said in his post that he had “just been informed” about it. He said Canada is already “a very difficult Country to TRADE with” because of its protected dairy industry.
“We have all the cards,” in the negotiations, Mr. Trump later told reporters in the Oval Office. “Economically, we have such power over Canada. I’d rather not use it.”
Mr. Carney was meeting remotely with his Canada-U.S. relations advisory council when Mr. Trump made his threat. In a statement, the Prime Minister’s Office suggested negotiations would continue and did not say if Ottawa would change course on the digital services tax.
“The Canadian government will continue to engage in these complex negotiations with the United States in the best interests of Canadian workers and businesses,” said Audrey Champoux, Mr. Carney’s spokesperson.
Canada refuses to pause digital sales tax as trade talks with U.S. continue Friday
Canadian Senator Hassan Yussuff, who sits on the Prime Minister’s advisory council, said Mr. Trump’s move was purely a pressure tactic and Canada should not take the bait.
“He’s trying to gain leverage on us in the context of the talks and using it to see what he can exploit to keep the pressure on us. And I think we don’t react to it. We kind of expected him to do something dramatic,” Mr. Yussuff, former president of the Canadian Labour Congress, told The Globe and Mail.
“He thinks every time he reacts like this, he will get a reaction out of us, and I think we just stop reacting and we’ll negotiate if we can get a good deal.”
Mr. Yussuff said there was not much talk about the President’s announcement during the advisory-council meeting. The group is made up of business and labour leaders and prominent Canadians. Members of the council only heard about Mr. Trump’s threat near the end of the meeting, he said.
The council discussed the challenges that the auto, steel, aluminum and forestry industries are facing because of U.S. tariffs. “There is a lot of pain going on in certain sectors and we are likely to have more [tariffs] before we get to some place, so people should bear that all in mind,” Mr. Yussuff added.
As U.S. trade deal deadline looms, Ottawa begins to temper expectations
Mr. Carney has promised a comprehensive deal with the U.S. covering both economic and security matters. At the G7 summit in Kananaskis, Alta., earlier this month, he and Mr. Trump set a 30-day deadline to finish it.
Canada’s lead negotiator is Kirsten Hillman, Ottawa’s ambassador to the U.S., with help from Intergovernmental Affairs Minister Dominic LeBlanc. The pair have been speaking and meeting regularly with U.S. Commerce Secretary Howard Lutnick.
During the Prime Minister’s May visit to the White House, one senior Canadian official said that getting Mr. Trump’s tariffs on Canada lifted was Ottawa’s precondition for a deal. But in recent days, the Canadian government has signalled to industry that it might agree to a deal that left at least some tariffs in place.
Mr. Trump has imposed a wide range of tariffs on Canada since returning to the White House in January. The country is disproportionately affected by the President’s universal 50-per-cent levies on steel and aluminum, and 25 per cent on autos. In addition, all goods from Canada and Mexico exported to the U.S. outside of the U.S.-Mexico-Canada Agreement are subject to 25-per-cent tariffs, with the exception of oil, gas and potash at 10 per cent.
While Mr. Trump has offered various rationales for the tariffs, including national security and fentanyl smuggling from Canada, he has said that his ultimate goal is to move more factories to the U.S. by stopping all imports of cars, steel and other goods from Canada.
Mr. Carney has imposed some retaliatory tariffs on the U.S. but suspended most of these in April to spare Canadian consumers economic pain while he tries to work out a deal. In addition to trade, Ottawa is aiming to address Mr. Trump’s demand on border security and Arctic sovereignty.
Treasury Secretary Scott Bessent earlier this week negotiated a deal with OECD countries that led to him to ask congressional Republicans to drop the "revenge tax" from Trump's big budget bill.Al Drago/Getty Images
Jim Stanford, head of the left-of-centre Future of Work think tank, suggested that Canada should respond to Mr. Trump’s threats by raising the digital services tax to 25 per cent on U.S. companies to apply some pressure of its own. “It’ll get the attention of his tech fanboys,” he tweeted.
Goldy Hyder, president of the Business Council of Canada, said he has warned the government for some time that the digital tax would not go over well with the Trump administration.
“That unfortunate development has now come to pass. In an effort to get trade negotiations back on track, Canada should put forward an immediate proposal to eliminate the [digital tax] in exchange for an elimination of tariffs from the United States,” he said in a statement.
Candace Laing, CEO of the Canadian Chamber of Commerce, reiterated her group’s concern that the tax is inflammatory at a time of delicate relations with the U.S. But she said Canadian negotiators need “the space to navigate” talks at the table.
“Negotiations go through peaks and valleys. With deadlines approaching, some last-minute surprises should be expected,” she said in a statement.
Opinion: There’s a global plan to tax Big Tech. Why did Canada act alone with digital services tax?
Canada’s digital services tax and its analogues around the world have long been a point of contention for the U.S. Mr. Trump’s sweeping “Big, Beautiful Bill” legislation even contained a provision allowing him to impose a “revenge tax” on countries that he deemed were treating American companies unfairly.
Treasury Secretary Scott Bessent earlier this week negotiated a deal with OECD countries that led to him asking Republican congressional leaders to drop the provision, which they did. It was not entirely clear what Canada and other countries agreed to in exchange.
On Friday, Mr. Bessent told CNBC that he was inclined to start an investigation under section 301 of the Trade Act of 1974 into digital services taxes, which would give him another way to impose retaliatory tariffs.
Mr. Trump’s tariffs on Canada are part of his global trade war, which he has conducted erratically since returning to power. He has repeatedly imposed tariffs on Canada and other countries only to abruptly dial them back and then, in some cases, reimpose them.
Lawrence Herman, a Toronto trade lawyer, warned that, in the midst of negotiations over a new bilateral security and trade deal – and with the renegotiation of USMCA looming later this year – Ottawa cannot give up any leverage, such as by quickly lifting the digital services tax to mollify Mr. Trump.
“Canada cannot cave in under these kinds of threats. It would weaken our negotiating stature with the U.S. in an incredible way,” he said, adding that it would also undermine Canadian relations with Europe. “Trump is an unreliable, unsystematic partner and a bully.”
With files from Bill Curry in Ottawa, Mark Rendell in Toronto and Alessandria Masi in Montreal