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Digital Tax

Canada Pulls Plug on Digital Tax in Last-Minute Move to Woo US

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In a sharp and sudden twist, Canada scrapped its Digital Services Tax just hours before its rollout, dodging what could have become a bruising trade battle with the United States. The tax, aimed at tech giants like Amazon and Google, sparked firm objections from Washington, with former President Trump calling it a “deal breaker.” As tensions cooled, trade talks are now set to resume. With global markets watching, this unexpected retreat may unlock a fragile window of economic cooperation—if both sides play their next moves with care.

STORY HIGHLIGHTS

  • Canada cancels Digital Services Tax just hours before enforcement deadline.

  • 3% tax would have applied to major U.S. tech firms like Google, Amazon, Meta, and Apple.

  • Trump threatened tariffs, calling the tax a “blatant attack” on American innovation.

  • U.S. Commerce Secretary welcomes Canada’s decision, markets rally in response.

  • Finance Minister Champagne to introduce repeal legislation in Parliament.

  • Canada emphasizes support for a multilateral digital taxation framework.

  • Canada remains a critical U.S. trade partner, with exports and imports exceeding $760 billion in 2023.

  • Biden administration also challenged the DST on USMCA compliance grounds.

In a last-minute reversal that could reshape the trajectory of North American trade relations, Canada has announced it is abandoning its planned Digital Services Tax (DST) — a move that comes mere hours before the levy was set to take effect on Monday. The sudden policy shift is widely seen as a strategic effort to salvage trade negotiations with the United States, which had reached a boiling point in recent days.

The decision was made public late Sunday night through a statement issued by Canada’s finance ministry. It noted that Canadian Prime Minister Mark Carney and U.S. President Donald Trump would now resume direct trade talks, with the goal of reaching a comprehensive agreement by July 21. The announcement came after mounting pressure from Washington, which viewed the DST as a direct threat to American tech giants and a possible violation of existing trade obligations under the North American trade framework.

The tax, originally announced in 2020, was designed to ensure that large multinational technology companies generating significant revenue from Canadian users contribute their fair share to the country’s economy. Specifically, it proposed a 3% tax on digital services revenues exceeding $20 million annually, retroactive to 2022. Had it been implemented, the measure would have impacted major U.S.-based firms such as Amazon, Meta, Alphabet’s Google, and Apple.

In recent weeks, the tension surrounding the DST had reached a critical level. Former U.S. President Donald Trump, who had already paused trade discussions on Friday in response to the proposed tax, did not hold back in his criticism.

“This was a blatant attack on American innovation,” Trump stated, accusing Canada of undermining the principles of free trade. “If this tax went forward, there would have been no deal — not now, not ever.”

Adding to the pressure, Trump declared on Sunday that unless Canada immediately reversed its stance, he would impose a new round of tariffs on Canadian exports within the week — a move that risked plunging bilateral relations into turmoil after a period of relative calm.

Responding to the change, U.S. Commerce Secretary Howard Lutnick posted a reaction on X (formerly Twitter), expressing his satisfaction with Canada’s decision.

“Thank you Canada for removing your Digital Services Tax, which was intended to stifle American innovation and would have been a deal breaker for any trade deal with America,” Lutnick wrote.

The policy retreat was also framed by Canadian officials as a practical decision grounded in the broader goal of achieving an international solution. Finance Minister François-Philippe Champagne confirmed that legislation would soon be introduced to repeal the Digital Services Tax Act entirely.

“The DST was originally introduced to address the fact that many large technology companies operating in Canada may not otherwise pay tax on revenues generated from Canadians,” Champagne said in the statement. “However, Canada’s preference has always been a multilateral agreement related to digital services taxation.”

Analysts suggest that while Canada’s DST had noble intentions rooted in tax equity and digital sovereignty, the political cost of maintaining the policy proved too high in the face of U.S. opposition. The United States, after all, remains Canada’s largest trading partner in goods and services — and the stakes of the ongoing negotiations could not be higher.

According to U.S. Census Bureau data, Canada bought $349.4 billion worth of American goods last year and exported $412.7 billion to the U.S., highlighting the deeply intertwined economic relationship between the two nations. Though Canada had managed to escape broad tariffs imposed earlier in April, it still faces steep 50% duties on its steel and aluminum exports to the American market — a point of contention that continues to simmer in the background.

The Biden administration, too, had previously flagged the DST as problematic, formally requesting trade dispute consultations earlier this year. U.S. officials argued that the tax was inconsistent with Canada’s obligations under the USMCA (United States-Mexico-Canada Agreement), formerly known as NAFTA.

This latest development comes after Carney and Trump met at the G7 summit earlier in the month, where both leaders reportedly agreed to wrap up a new economic agreement within 30 days. Though the meeting had been seen as a signal of cooperation, tensions flared almost immediately afterward when details of Canada’s DST surfaced again.

Now, with the DST effectively shelved and legislation to repeal it on the horizon, diplomatic space has opened once more for constructive dialogue. Wall Street responded positively to the news, with futures reaching record highs Monday morning. The market reaction reflects investor optimism that the renewed talks between the U.S. and Canada could lead to a smoother economic path ahead.

While the final shape of the upcoming trade deal remains unclear, the removal of the DST marks a significant reset in U.S.-Canada relations — one that could determine the contours of North American commerce for years to come.

Canada’s decision to withdraw its Digital Services Tax marks a pivotal shift in its trade diplomacy with the United States. By stepping back from a measure that risked igniting tariff retaliation and diplomatic discord, Canada has chosen negotiation over confrontation. As both nations now return to the table with renewed urgency, the coming weeks will determine whether this tactical retreat fosters a stable trade framework—or merely postpones deeper conflict. For now, the halted tax offers a fragile but welcome pause, opening the door to economic compromise in a high-stakes cross-border relationship.

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China Deal “Done” Says Trump—But Xi Yet to Seal the Pact

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A fresh wave of diplomacy stirs global attention as former U.S. President Donald Trump declares that a long-anticipated trade deal with China is “done,” though awaiting final approval from Chinese President Xi Jinping. The announcement, made after intense London talks, outlines major tariff adjustments and rare resource exchanges, along with continued student entry into U.S. universities. With both powers holding their cards close, the so-called “handshake for a framework” signals a high-stakes moment between the world’s largest economies—poised delicately between promise and pending power-play.

STORY HIGHLIGHTS

  • Trump declares U.S.-China trade deal “done,” pending personal approval from Xi.

  • U.S. to impose 55% tariffs; China to respond with 10%.

  • China agrees to provide rare earths and full magnets upfront.

  • The agreement includes continued access for Chinese students in U.S. institutions.

  • Commerce Secretary Lutnick calls it a “handshake for a framework.”

  • China’s Vice Premier He Lifeng warns, “China doesn’t want to fight, but it is not afraid of fighting.”

  • Next steps require formal approval from both presidents before rollout begins.

In a development that signals a potential turning point in one of the most complex trade relationships of the modern era, former President Donald Trump has claimed that the United States and China have completed a trade agreement, pending a final sign-off from the two heads of state.

Speaking via his Truth Social platform, Trump stated that the deal was in place and simply awaiting the green light from Chinese President Xi Jinping and himself. “Our deal with China is done, subject to final approval with President Xi and me,” he wrote, further noting the current state of bilateral ties as “excellent.”

This announcement follows a fresh round of negotiations held over two days in London — part of a longer chain of diplomatic engagements that included talks in Geneva and a direct phone call between Trump and Xi. These discussions come on the heels of Trump’s recent tariff hikes on a wide array of Chinese imports, a move that reignited global attention on the ongoing U.S.-China trade tensions.

Though specific terms of the deal are yet to be officially released by China, Trump revealed several key elements. According to him, the agreement stipulates that the United States will impose a total of “55% tariffs” on Chinese goods, while China will respond with “10%” tariffs. Perhaps more significantly, Trump added that China would commit to supplying “full magnets and any necessary rare earths, up front,” ensuring a critical stream of resources for U.S. industries.

In a gesture of reciprocal cooperation, Trump also indicated that the United States would honor commitments involving educational exchange, stating, “Likewise, we will provide to China what was agreed to, including Chinese students using our colleges and universities (which has always been good with me!).” This particular point suggests that despite escalating economic measures, the cultural and academic ties between the two nations remain intact — at least for now.

Earlier on Wednesday, Chinese state media cautiously confirmed that both countries had reached a trade “framework” during the London sessions. However, they stopped short of offering detailed specifics, perhaps in recognition that the agreement still requires formal approval from both leaders.

U.S. Secretary of Commerce Howard Lutnick, commenting late Tuesday, described the outcome as a “handshake for a framework,” emphasizing that it wasn’t yet a finalized deal. Lutnick pointed out that certain core decisions had been reserved for Trump and Xi, who would need to personally affirm the framework before any implementation begins. “Once that’s done, we will be back on the phone together and we will begin to implement this agreement,” Lutnick said. “The two largest economies in the world have reached a handshake for framework.”

Observers note that the phrase “handshake for a framework” indicates that the discussions have moved into a pre-decisional stage — not yet binding, but significant enough to lay down markers for what could be a historic economic accord between the U.S. and China.

Representing China at the talks was Vice Premier He Lifeng, who reportedly struck a balanced tone in his official remarks while also delivering a firm message to the American delegation. Citing the state-run Xinhua News Agency, He emphasized that “disputes between the two should be resolved through equal dialogue and mutually beneficial cooperation.”

However, other Chinese-language media sources suggested that He took a more pointed stance behind closed doors. He reportedly cautioned that “there is no winner in a trade war,” and added with resolve, “China doesn’t want to fight, but it is not afraid of fighting.” The dual tone reflects Beijing’s intent to project diplomacy publicly while maintaining firmness in negotiation.

While many questions still remain — including what exact concessions have been made, and how enforcement will be monitored — the declaration from both parties that a framework is in place is a significant step forward after years of volatile back-and-forth.

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