In a dramatic escalation of tensions between the United States and its northern neighbor, President Donald Trump announced Friday that he is “immediately” cutting off trade negotiations with Canada. The decision comes as Canada prepares to implement a contentious 3% digital services tax targeting large tech firms—most of which are American.
The announcement, made via social media, stunned observers and cast a dark cloud over ongoing efforts to renegotiate parts of the U.S.-Canada trade relationship ahead of a mid-July deadline. Trump described the Canadian tax as “egregious” and said his administration would impose new tariffs on Canadian goods within the next week.
“We are hereby terminating ALL discussions on Trade with Canada, effective immediately,” the president wrote on his official social media account. “We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven-day period.”
The move marks a significant rupture in what had recently been a warmer-than-usual relationship between Trump and newly elected Canadian Prime Minister Mark Carney. Despite the president’s fiery rhetoric, Carney remained diplomatic in his response, telling reporters that negotiations would continue in what he called “the best interest of Canadians.”
Trump Abruptly Halts Trade Talks with Canada Over Digital Tax Dispute, Signals New Tariffs
At the heart of the dispute is Canada’s digital services tax, enacted last year but scheduled for its first collection on Monday. The 3% levy targets revenues earned by large tech firms—including Amazon, Apple, and Google—within Canada’s borders, and is expected to cost U.S.-based companies over $2 billion annually.
The tax has long been a sore point for the U.S., which argues it unfairly singles out American corporations. Canadian officials, meanwhile, have maintained that the measure is a fair way to ensure multinational tech giants pay their share of local taxes.
The Carney government had hoped to address the tax as part of a broader renegotiation of trade relations with the U.S., possibly finding a compromise that would prevent a deterioration in bilateral ties.
Trump’s announcement now throws those hopes into uncertainty. The president also hinted at fresh tariffs on Canadian exports, though no specific sectors were mentioned. Analysts speculate the measures could target automobiles, aluminum, steel, or agriculture—sectors that have been flashpoints in the past.
Trump has previously used the threat of tariffs as a bargaining tool, often making abrupt declarations on social media only to backtrack or revise them days later. In fact, just last month, he threatened punitive tariffs on goods from the European Union over unrelated disputes but later softened his position.
Business leaders are bracing for impact. Candace Laing, CEO of the Canadian Chamber of Commerce, acknowledged that “last-minute surprises should be expected” as the mid-July deadline approaches, but expressed cautious optimism that negotiations could still move forward.
“The tone and tenor of talks has improved in recent months, and we hope to see progress continue,” Laing said.
Some analysts see Trump’s move as part of a calculated strategy. Inu Malak, a fellow for trade policy at the Council on Foreign Relations, noted that similar tactics had been used in negotiations with other U.S. allies. She believes the latest threat may be designed to force Canada into faster concessions.
“It’s straight out of the Trump playbook,” said Malak. “High-stakes pressure, abrupt threats, then eventual compromise. It may not be the opening Prime Minister Carney wanted, but it does create momentum for a resolution—if both sides are willing.”
Others warn the damage could be more lasting. Trade between the U.S. and Canada is deeply integrated, with car parts and raw materials often crossing the border multiple times during production. Any disruption, especially through new tariffs, could severely affect industries in both countries.
Earlier this year, the Trump administration imposed a 25% tariff on certain Canadian goods, citing concerns about border security and drug trafficking. That move triggered retaliatory measures from Ottawa, further straining relations.
News of the suspended trade talks rattled financial markets initially. Shares in U.S. companies fell sharply Friday morning, with many tech and industrial stocks seeing declines. However, markets recovered later in the day, and the S&P 500 closed at a record high, a sign that investors may be betting on a near-term resolution or at least temporary calm.
Canada remains the United States’ top trading partner, with over $400 billion in goods exchanged in 2024 alone. The two countries share one of the most robust and longstanding free trade relationships in the world, most recently formalized through the U.S.-Mexico-Canada Agreement (USMCA), which replaced NAFTA.
But Friday’s announcement raises fresh questions about the durability of that agreement, and about Trump’s long-term strategy toward North America’s economic integration.
For now, Prime Minister Carney’s diplomatic stance appears to leave the door open to talks—but the clock is ticking. With the digital tax set to take effect on Monday, and Trump promising new tariffs within days, the next week could be pivotal for the future of U.S.-Canada trade relations.
Source- BBC
