Canada’s recent enactment of a DST to further heighten global trade tensions with the United States. In retaliation, President Donald Trump has been calling his own major tariffs in retaliation. The tax also levies a 3 percent tax on revenues from digital services that companies generate in Canada. This move has certainly ruffled feathers at the U.S. administration, which has long expressed its displeasure with comparable digital services taxes passed by other European countries. As talks continue to drag, bilateral trade relations between Canada and the U.S. remain at a crossroads ahead of a potential fall election in Canada.
June 16, 2025—Canadian Prime Minister Mark Carney speaking with President Trump following the family photo at the G7 Summit. Their conversations went on long after the formal photo op. The keynote focus of their discussions was on the newly introduced DST and its effect on U.S.-Canada trade relations. More than 80 percent of Canadian exports go to the U.S. Yet any break in this trade might have devastating effects for both nations.
Trump’s administration has firmly opposed digital taxes introduced by various countries, including EU member states such as France, Italy, and Spain. France’s DST, adopted in 2019, imposed a 3 percent tax on revenues generated by online advertising and other digital services. The United Kingdom and Turkiye have already implemented their own unilateral digital tax systems. Turkiye was unique in going with one of the absolute highest rates at 7.5 percent. Countries including Kenya and Indonesia have set up their own digital tax systems. Indonesia, for one, has made the decision to adopt a Value Added Tax (VAT) on foreign digital services.
Canada’s Digital Services Tax Explained
Canada’s DST focuses on big tech companies. These companies have to be over $820 million in global revenues and make over $14.7 million in Canadian revenues. The new tax is scheduled to go into effect in 2024. That delay leaves just enough time for some further negotiations, headed up by the Organization for Economic Co-operation and Development (OECD). This delay was meant to give time for consensus-building among member countries over standards to be used in international taxation.
Although the hope is that these discussions remain consistent with those underway at the OECD, Canada’s decision to go ahead with the DST has turned heads in Washington. Most U.S. officials maintain that the tax disproportionately harms U.S. companies. Many of these companies do not have a physical presence in Canada.
Kevin Hassett, an economic advisor, pointed out the implications of such taxation on American businesses:
“They’re taxing American companies who don’t necessarily even have a presence in Canada.” – Kevin Hassett
The Canadian government has insisted that the DST is necessary to ensure that tech giants contribute fairly to national revenue. Critics say that would invite tit-for-tat action from the U.S., putting vital trade links in danger.
Trump’s Retaliation Threats
President Trump has made no secret about his feelings on Canada’s Daylight Saving Time. These measures, he cautions, are likely to result in extreme retaliation against Canadian exports. He’s previously threatened 25- to 50-percent tariffs on several important European exports. This is what will occur if an accord is not achieved soon. This retaliatory stance on MMT is indicative of a new strategy to create an America First, protect all American interests in the globalized supply chain.
Trump emphasized his administration’s leverage in negotiations:
“We have all the cards. We have every single one.” – Trump
He cautioned that Canada’s move to implement the DST would not be left unchecked.
“It’s not going to work out well for Canada. They were foolish to do it.” – Trump
Needless to say, Trump’s administration is keen to exploit these circumstances. They want to negotiate better terms for American farmers and businesses, particularly in the dairy sector, as he likes to point out Canadian tariffs are too damn high.
“They have charged our Farmers as much as 400% Tariffs, for years, on Dairy Products,” – Trump
Demand for the DST is reaching a boiling point. According to Trump, Canada will have to do away with the tax if they want to continue trade negotiations without being subjected to punitive measures from the U.S.
Implications for Trade Relations
The current controversy over Canada’s planned digital services tax arrives at an especially sensitive moment for both countries. Trade negotiations have been at an impasse, and Carney’s administration has issued a 30-day deadline. Today, in both countries, there is enormous pressure on both governments to arrive at some resolution. In light of the current impasse, the Business Council of Canada has suggested a pathway forward:
“In an effort to get trade negotiations back on track, Canada should put forward an immediate proposal to eliminate the DST in exchange for the elimination of tariffs from the United States.” – Business Council of Canada
The stakes are high, any further increase in tariffs would be disastrous for sectors that depend on cross-border commerce. Canada, meanwhile, is working hard to implement and figure out their new tax policy and what it means for their international relationships. The result of these negotiations will do much to determine the tone of future economic relations with its biggest trading partner.
