On Sunday, Canada dropped quite the bombshell to resuscitate tattered trade negotiations with the United States. The country recently declared that it will abolish its digital services tax (DST), a levy on multinational online businesses that operate within its borders. This decision marks an important departure from Canada’s previous approach to international trade. Former President Donald Trump is claiming it as a big win, too, having long derided such taxes as regressive.
The Canadian federal government is hoping to help smooth out disagreements and differences between the two countries, which are already each other’s largest trading partners. Canada and the United States happen to share extensive and critical trade relations. In 2021, Canada exported a record $413 billion in goods to the U.S. Canada is the largest market for U.S. exports, importing $349 billion in goods during that same time.
Prime Minister Mark Carney stated that this decision is part of a broader effort to bring both nations back to the negotiating table. The digital services tax was set to take effect retroactively from 2022 but faced backlash from Trump, who labeled it “a direct and blatant attack on our Country.” In doing so, the former president has tried to paint every reform as some foreign power “ripping off” the U.S. This recent development should be expected to lower the temperature on the trade front.
Minister of Finance and National Revenue, the Honourable François-Philippe Champagne, put a fine point about how significant this decision is in his announcement.
“To support those negotiations, the Minister of Finance and National Revenue, the Honourable François-Philippe Champagne, announced today that Canada would rescind the Digital Services Tax in anticipation of a mutually beneficial comprehensive trade arrangement with the United States,”
In fact, Trump’s administration at one point threatened to slap 25% tariffs on all Canadian imports. This action was a direct response to the regressive tax noted above. This threat has hung over US-Canada trade relations for months and helped spur Trump’s cancellation of US-Canada trade talks currently underway.
The implications of this decision are substantial. Canada’s repeal of the digital services tax is aimed at furthering its cooperative relationship with the US. This decision would help cement Canada’s role as an essential hub of North American trade. The cancellation indicates a desire to compromise, being open to discussion and flexibility for greater long-term benefits in any partnerships of an economic nature.
