North America's major powers rekindle trade negotiations
Canada and the United States have resumed their trade negotiations following a pause, with the aim of reaching an agreement by July 21, 2025. The ongoing discussions are a significant step forward, as the talks were halted due to a digital tax controversy.
The controversy began when Canada introduced a digital services tax (DST) last year, during the tenure of U.S. President Joe Biden. The DST aimed to ensure that digital companies were taxed where they made profits - in this case, in the neighboring country. However, U.S. President Donald Trump described the digital tax as a "direct and brazen attack" on the U.S. and cited it as the reason for ending the talks.
In response, Canada withdrew its plan to tax U.S. tech companies, a decision confirmed by Canadian Prime Minister Mark Carney and U.S. President Donald Trump's economic advisor, Kevin Hassett. The withdrawal of the tax was in anticipation of a comprehensive trade agreement beneficial to both countries.
The DST requires large domestic and foreign companies to pay a three-percent tax on certain revenues generated through online users in Canada. It appears that Canada is following the European Union's lead in implementing a digital tax.
The U.S. is Canada's most important trading partner, and the current status of Canada-U.S. trade talks indicates active efforts to address trade issues. The U.S. Department of the Treasury, U.S. Department of Commerce, and the Office of the U.S. Trade Representative are leading specific bilateral trade negotiations, including those with Canada. However, detailed information on the content and progress of these talks has not been publicly disclosed.
Notably, the withdrawal of the planned digital tax by Canada will allow negotiations over a new economic and security relationship with the U.S. to make significant progress. At the G7 summit, Trump had demanded that Canada back down from the tax. Trump's cancellation of all trade talks with Canada on Friday and threat of new tariffs were a result of the digital tax controversy.
However, it seems that both parties have put the past behind them, with both Canada and the USA announcing the resumption of trade talks. The talks are taking place amid ongoing discussions with the European Union on this matter.
[1] Source: U.S. Department of the Treasury, U.S. Department of Commerce, and the Office of the U.S. Trade Representative. (2025). Current Status of Canada-U.S. Trade Talks. [online] Available at: https://www.ustr.gov/canada-trade-talks [Accessed 29 July 2025].
Politics surrounding the digital services tax (DST) has been a significant general-news topic, with Canada introducing the tax last year and the U.S. condemning it as a direct attack. The resumption of Canada-U.S. trade talks, following a pause due to the digital tax controversy, indicates that both countries are striving to address trade issues and potentially reach a new economic and security relationship.
