Carney bends against Trump: In surprise shift, Canada drops Digital Tax to reignite trade talks with US

On June 29, 2025, Canada’s government said it is removing the Digital Services Tax (DST) to help restart trade talks with the U.S, as per the Department of Finance Canada. This decision comes from Prime Minister Mark Carney, who wants to get the best economic and security deal for Canada with the U.S.

Carney and Trump agreed to restart trade talks and aim to finish a deal by July 21, 2025. The DST was first introduced in 2020 because big tech companies like Amazon were making money from Canadians but not paying fair taxes.

Canada wanted to tax big tech

Canada had hoped for a global agreement on taxing digital companies but made the DST in the meantime. The tax was supposed to be 3% on digital services revenue from Canadian users if the firm made over $20 million per year, with charges going back to 2022, as per the report by Reuters.

The first DST payment was supposed to be collected on June 30, 2025, but now that’s been cancelled. Finance Minister François-Philippe Champagne will now introduce a law to officially remove the Digital Services Tax Act, as stated by the Department of Finance Canada.

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Carney said the government will only make deals that help Canadian workers and businesses, and this move helps negotiations move forward. Champagne added that the goal is to make Canada the strongest economy in the G7, and scrapping the tax will help with that, as quoted by PM Carney in Finance Canada.

Trump pushed back hard

On Friday, Trump had suddenly stopped trade talks, calling the digital tax a “blatant attack” on U.S. tech companies. Trump warned he would put new tariffs on Canadian goods within a week if the tax stayed, according to the report by Reuters.

This trade fight came just weeks after a friendly G7 meeting, where both leaders said they wanted a new deal in 30 days. After the announcement to drop the tax, stock markets rose, and good vibes spread to Asian markets too, according to reports.

In 2024, the Biden administration had also complained about the tax, saying it broke trade rules in the USMCA deal. Canada is America’s second trade partner, just behind Mexico, and one buyer of U.S. goods, so keeping trade calm is important. Canada had avoided Trump’s big tariffs from April, but still faces 50% duties on steel and aluminum, as per the report by Reuters.

FAQs

Q1. Why did Canada remove the Digital Services Tax?
Canada removed DST to restart trade talks with the U.S. and avoid new tariffs.

Q2. How does the DST affect U.S. companies?
It would have charged U.S. tech firms like Amazon 3% on their Canadian digital sales.