U.S. President Donald Trump, right, broke off trade negotiations over Canada's digital services tax on Friday.GEOFF ROBINS/AFP/Getty Images
Maybe Prime Minister Mark Carney’s elbows were getting tired. He kept them up the entire campaign, and well, that was enough to get the job done (the job, notably, being winning the election – not standing up to U.S. President Donald Trump). And now that the election is over, Mr. Carney has allowed himself some moments of rest.
He dropped them down to tell Mr. Trump he is a “transformational president,” and then hoisted them up to bluster about Mr. Trump’s “illegal” doubling of tariffs on steel and aluminum, but let them fall again when it came to actual retaliatory measures, and then raised them again (an ephemeral gesture, it turns out) in response to U.S. griping about the planned digital services tax. This repeated motion of elbows-up, then elbows-down, then elbows-up and so on creates something that scholars of performance art have referred to as the “chicken dance,” which is an appropriate characterization of this government’s approach to negotiations with Mr. Trump thus far.
It wouldn’t seem quite so shameless had Mr. Carney campaigned on a realpolitik approach to negotiations with the U.S., acknowledging that there has to be give and take in any and all bilateral discussions. Instead, he pledged it would be all sticks – no carrots, elbows up! – because pragmatism doesn’t stir the electorate the same way a catchy slogan does.
Late Sunday night, just hours before collection for the DST was set to begin, the Canadian government announced that the June 30 collection would be halted, and that Finance Minister François-Philippe Champagne would soon introduce legislation to rescind the Digital Services Tax Act. This decision was a direct result of Mr. Trump’s Friday Truth Social post announcing the U.S. would be “terminating ALL discussions on Trade with Canada, effective immediately,” because of the tax.
Explainer: Canada cancelled its digital services tax. What was it and why did the U.S. hate it?
The DST was passed back in June, 2024, under the Trudeau government, though it was only set to kick in this week. The tax would have forced tech giants that earn more than €$750-million globally and $20-million in revenue in Canada annually to pay a 3-per-cent tax on revenue from certain online services. The government pegged the DST, which it was planning to collect retroactively to 2022, as a way to force big online companies to pay their fair share, akin to its rationale for Bill C-18, the Online News Act, which attempted to get web giants to pay for linking to Canadian journalism, but ended with Meta blocking access to Canadian news on Facebook and Instagram.
Predictably, the announcement of the DST compelled some tech giants to pass on the costs to Canadians; back in October, Google started charging Canadian advertisers a 2.5-per-cent “DST fee” to offset the cost of complying with the forthcoming legislation.
There is an argument to be made that there is no bad time to scrap bad policy, and the DST was indeed bad policy (beyond the added cost to consumers, these types of levies distort market incentives and discourage investment). Yet there were plenty of opportunities to kill the DST before Mr. Trump issued his ultimatum, including during the Biden administration, when it was made explicitly clear that the legislation was a trade irritant (the U.S. launched dispute settlement consultations over the tax in August).
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The Organization for Economic Co-Operation and Development has been working for years to design and implement a standard policy for taxing digital services, and with 140 members signed on, Canada could have chosen to pause its tax until it could cocoon itself in the shield of an OECD framework. Instead, it trudged ahead until the literal 11th hour.
Killing the DST now reeks of desperation. It is a capitulation without reward; the U.S. has since agreed to resume negotiations – but that’s it: talks. The mercurial Donald Trump could decide that supply management is his real gripe, and call talks off again. Should that happen, we would be weaker than we were before since we have robbed ourselves of a bargaining chip in the DST that we could have used if, for example, Mr. Champagne announced that Canada was pausing or delaying collections, rather than rescinding the legislation altogether.
The message this decision sends to Canadians is that our domestic policy is being set by the White House, and the message it sends the White House is that we are pathetic little weaklings who will bend to the President’s whims. We shouldn’t mourn the death of the DST, but we should mourn the death of our integrity. This chicken dance is awfully embarrassing.