Canada yields to U.S. pressure, drops digital tax in face of Trump’s retaliation

Department of Research, Studies and International News 30-06-2025

In a telling display of Washington’s enduring influence over its northern neighbor, Canada has decided to backtrack on its proposed digital services tax following pressure from U.S. President Donald Trump. The move comes after Trump abruptly suspended bilateral trade talks in response to the tax, calling it a direct assault on American tech giants. Now, with Canada’s concession, both countries have agreed to resume trade negotiations.

Prime Minister Mark Carney confirmed on Sunday that the digital tax, which was scheduled to take effect on Monday, will be scrapped. Carney’s statement emphasized that Canada is now back on track for resuming negotiations with Washington, aligning with the timeline agreed upon during the recent G7 Leaders’ Summit in Kananaskis.

“Today’s announcement will support a resumption of negotiations toward the July 21, 2025, timeline set out at this month’s G7 Leaders’ Summit,” Carney said.

The digital levy had targeted the revenues of large multinational tech corporations, many of which are headquartered in the United States. Companies such as Apple, Google’s parent company Alphabet, Amazon, and Meta were expected to be affected by the 3 percent tax on digital services revenues from Canadian users. The measure was also designed to be retroactive to 2022.

Trump reacted strongly on Friday, calling the measure a “direct and blatant attack” on American economic interests. His administration responded by halting trade talks, effectively using economic pressure to force Canada’s hand. It’s a familiar pattern, economic bullying masquerading as diplomacy, employed repeatedly by Washington to maintain its global dominance.

Canadian tech analyst Paris Marx criticized Ottawa’s retreat. “This sends a clear message that Canada can be pushed around,” he said. Marx, who hosts the Tech Won’t Save Us podcast, emphasized that the digital tax was a necessary tool to ensure tech behemoths pay fair taxes in foreign markets.

“Multinational tech companies do not pay their fair share of tax in Canada, and the digital services tax was designed to address that. Canada is wrong to back down,” Marx added.

Indeed, the tax was long overdue. Introduced in 2020, the DST was a response to the growing frustration that digital multinationals extract significant value from foreign markets without adequately contributing to local tax systems. Canada had hoped that a multilateral agreement under the Organisation for Economic Co-operation and Development (OECD) would eventually standardize digital taxation, but that effort has consistently been stalled, ironically, by U.S. obstruction, regardless of whether it was under Biden or Trump.

Frustrated by American intransigence, countries around the world have started to implement their own digital service taxes. France, the UK, and India have all pursued similar measures. Canada’s reversal, however, now marks it as an outlier, bowing to U.S. economic threats rather than standing firm on digital taxation justice.

The Canadian finance ministry announced that all collection activities related to the tax will be halted, and legislation will be introduced to formally revoke the Digital Services Tax Act. Finance Minister François-Philippe Champagne is expected to lead the effort.

“The DST was announced in 2020 to address the fact that many large technology companies operating in Canada may not otherwise pay tax on revenues generated from Canadians,” the ministry noted. “Canada’s preference has always been a multilateral agreement related to digital services taxation.”

This development highlights an ongoing imbalance in the global digital economy. U.S.-based corporations continue to rake in enormous profits from foreign users while contributing little in return. Rather than supporting international efforts to rectify this, Washington has repeatedly used threats and trade leverage to prevent sovereign nations from asserting their rights.

Canada’s trade dependency on the U.S. adds to its vulnerability. As America’s second-largest trading partner after Mexico and the top purchaser of U.S. exports, Ottawa finds itself in a position of economic subordination. Last year alone, Canada bought $349.4 billion worth of U.S. goods and exported $412.7 billion back to its southern neighbor.

Trump’s administration had already imposed steep 50 percent tariffs on Canadian steel and aluminum earlier this year. While Canada initially escaped a broader round of tariffs in April, the message was clear: economic coercion remains a central tool in America’s diplomatic arsenal.

From a broader geopolitical perspective, Canada’s decision reflects a worrying trend in the West, smaller powers falling in line behind Washington’s dictates at the expense of independent policymaking. As global multipolarity deepens, especially with rising Eurasian influence led by China, Russia, and Iran, such subservience may ultimately cost Western-aligned countries their economic sovereignty and international credibility.

Rather than taking a stand, Canada has once again opted for compromise, revealing the limits of its political resolve in the face of American economic blackmail.