Trade negotiations between Canada and the United States are back on track
Following the withdrawal of Canada's digital tax on U.S. tech companies, negotiations between Canada and the United States have resumed. The digital tax, which was set to come into effect on Monday, has been withdrawn due to pressure from former U.S. President Donald Trump.
Trump had previously deemed the tax a "direct and brazen attack" on the USA, and had threatened severe new tariffs on Canadian goods if no agreement was reached. The USA, Canada's most important trading partner, accounts for roughly 25% of Canada's GDP through exports.
The digital tax on U.S. tech companies was seen as a move following the European Union's example. The Canadian government aims to ensure the taxation of digital companies where they make profits, in this case, in the neighboring country.
The withdrawal of the digital tax means that negotiations between Canada and the USA can continue. The Canadian government agreed to resume negotiations with the USA to reach an agreement by July 21, 2025. However, as of early August 2025, no new trade deal has been finalized, and the situation remains uncertain.
U.S. President Donald Trump's economic advisor, Kevin Hassett, confirmed the resumption of trade talks on Monday. Canada's Finance Minister François-Philippe Champagne stated that the withdrawal of the digital tax would allow for significant progress in negotiations for a new economic and security relationship with the USA.
Ongoing discussions are also taking place between Canada and the EU regarding the digital tax. The Canadian government introduced a new digital services tax (DST) last year, during the tenure of U.S. President Joe Biden.
As the trade talks continue, both countries face potential economic challenges. Analysts suggest that even a moderated tariff agreement might cost Canada an effective tariff rate equivalent to 3% of GDP, posing a risk of recession and damage to industrial capacity.
The DST requires large domestic and foreign companies to pay a three percent tax on certain revenues generated through online users in Canada. The resumption of trade talks offers hope for a resolution that benefits both countries, but the negotiations are taking place under significant strain and threat of escalating tariffs.
[1] Source: Various news outlets, August 2025.
The digital tax withdrawal paves the way for substantial progress in Canada-USA negotiations, as confirmed by Kevin Hassett, Trump's economic advisor. The resumed talks aim to establish a new economic and security relationship, with the Canadian government seeking fair taxation of digital companies in the USA.
Simultaneously, ongoing discussions between Canada and the EU focus on a digital tax, highlighting the broader international context of these negotiations. The stakes are high, as any moderated tariff agreement could potentially cost Canada an effective tariff rate equivalent to 3% of GDP, posing a risk of recession and industrial capacity damage. Politics and general-news continue to unfold as both countries strive for mutually beneficial resolutions.
[1] Source: Various news outlets, August 2025.
