Canada has backed down from its Digital Services Tax just days after U.S. President Donald Trump blew up trade talks and threatened tariffs, accusing Ottawa of targeting American tech giants in what he called a “direct and blatant attack on our country.”
In a fast-moving development that began with an online outburst from Trump and escalated into a diplomatic standoff, Canada’s new government under Prime Minister Mark Carney announced Sunday it will scrap the Digital Services Tax “to support” broader economic and security negotiations with Washington.
Trump’s reaction earlier this week was as combustible as expected.
“They are putting a Digital Services Tax on our American Technology Companies,” Trump wrote on his social media platform. “We are hereby terminating ALL discussions on Trade with Canada, effective immediately.”
He also threatened that a new set of tariffs on Canadian exports would be announced within seven days.
Now, Ottawa has hit pause.
Canada’s Department of Finance confirmed that the collection of the tax scheduled for June 30 will be halted, and new legislation will be introduced to repeal the Digital Services Tax Act altogether.
“Canada’s new government is focused on building the strongest economy in the G7,” Champagne said, “and standing up for Canadian workers and businesses.”
Prime Minister Carney added that while Canada wants a fair deal, it’s also prepared to move quickly. “Canada will take as long as necessary, but no longer, to achieve that deal,” he said.
This marks a rare reversal on digital taxation, a policy Canada has defended since 2020 to address what it called a “taxation gap” created by tech companies like Amazon, Google, and Meta, who generate large revenues from Canadian users but pay minimal taxes in the country.
While Ottawa insisted the move was about fairness, Trump didn’t hold back. In his post, he slammed Canada as a “very difficult Country to TRADE with” and recycled his long-running complaints about Canadian dairy tariffs, some of which he claimed were as high as 400%.
“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,” Trump warned.
Just 48 hours later, the Canadian government blinked.
The two sides have now agreed to restart negotiations immediately, aiming for a new deal by July 21, a deadline set during this month’s G7 Summit in Kananaskis, Alberta.
While the details of the potential agreement remain under wraps, both governments are positioning it as a comprehensive economic and security partnership, one that could redefine cross-border trade in the post-pandemic digital era.
In just under a week, a dispute over digital taxes spiraled into a trade freeze, then flipped into full scale negotiations again. For President Trump, it is another example of his high-risk, high-volume negotiating style producing immediate results. For Canada’s new government, it’s a gamble that pulling the tax might unlock a broader deal.
Either way, both sides now have just three weeks to turn tension into treaty.
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