Canada Backs Off Tech Tax, U.S.-Canada Trade Negotiations Now Reignite

30 June 2025

White House economic adviser Kevin Hassett. (Alex Brandon/AP)

Canada’s decision to abandon its planned 3 percent digital services tax on revenue from major U.S. technology firms marks a dramatic pivot in North American trade policy. The measure, scheduled to take effect Monday and aimed squarely at companies like Amazon, Apple, Google, Meta, and Uber, would have been retroactive to 2022. Its elimination is designed to remove the single largest obstacle standing in the way of restarting stalled trade negotiations with the United States.

On Monday, White House economic advisor Kevin Hassett confirmed on Fox News that the United States will immediately resume trade talks with Canada. He indicated that President Trump had pressed Canadian Prime Minister Mark Carney to drop the tax during their G7 summit meetings, a request that has now been met. Hassett emphasized that without the tax, negotiations can move forward as planned.

The tax reversal, announced just hours before the levy’s implementation, also tamed growing anxieties in equity markets. Futures on Canada’s S&P/TSX index ticked upward amid the positive news, while U.S. stock futures hit new record levels, driven by expectations that renewed trade dialogue would fuel confidence in key sectors.

Carney and Trump have set an ambitious target: finalize a new bilateral economic agreement by July 21. Canada’s Finance Minister François‑Philippe Champagne highlighted that rescinding the tax would facilitate progress on broader economic and security collaboration aimed at benefiting both nations. The move also underscores a concerted effort to align with multilateral digital taxation frameworks proposed by the OECD.

Behind this concession lies a high-stakes policy chess game. President Trump labeled the digital tax a “blatant attack on our country,” prompting him to suspend trade talks on Friday ahead of the tax's enforcement. He further threatened retaliatory tariffs on Canadian exports absent swift compliance. Canada’s reversal can be seen not only as a gesture of resolution but also as a strategic compromise necessary to restore diplomatic and commercial stability.

Market analysts believe the tax’s withdrawal is a win for U.S. tech companies, whose Canadian profits would have been subject to a hefty levy. The policy shift signals that Canada is prioritizing strong bilateral ties and smoother cross-border commerce over stringent digital tax measures. Critics, however, view it as a reluctant retreat prompted by external pressure rather than domestic conviction, leaving uncertainty about Canada’s ability to assert financial sovereignty.

Following last week’s suspension of talks, both countries now return to the negotiation table with renewed momentum. Economically, however, tensions remain. The Canadian government continues to face U.S. tariffs on metals and autos, including steel, aluminum, and automotive parts, all areas that require further resolution. Prime Minister Carney has repeatedly emphasized that Canada seeks to restore trade flows and avoid further tariff disruptions.

Observers say the July 21 deadline reflects a broader push to redefine the Canada-U.S. trade alliance amid shifting global supply chains, digital transformation, and geopolitical pressures. While the digital services tax had gained traction in Europe as a means to extract revenue from global tech giants, Canada’s U-turn preserves open market access for U.S. companies and may signal a stronger Continental alignment.

The upcoming negotiation session is expected to address core issues: tariff rollback, auto sector rules, metals and energy cooperation, and a framework for digital economy taxation. Some analysts expect Trump’s team to leverage the digital tax concession to advance broader protections for U.S. industries, potentially testing Canada's resolve during the talks.

In short, by scrapping its digital services tax, Canada has removed the most prominent obstacle to cutting a significant economic deal with the U.S. The challenge now is converting goodwill into tangible agreements that address not only trade but also longer-term strategic cooperation in technology, security, and energy. With both sides eyeing a July deadline, the coming weeks will be crucial in shaping the future of U.S.-Canada economic relations.