Canada withdraws digital tax in bid to restart US trade negotiations

Canada's decision to scrap its planned digital services tax under pressure from Washington has reignited criticism over Ottawa's concessions to the Trump administration, even as trade talks between the two countries resumed this week.

Adam Chapnick, a professor of defense studies at Royal Military College of Canada, said the federal government's decision to cancel the tax appears to have been driven by pressure from Washington.

"Although the tax was not popular among Canadian businesses and with the Canadian Chamber of Commerce, it does appear that threats from the White House resulted in this concession," he told China Daily.

Canadian Prime Minister Mark Carney said on Sunday that US-Canada trade talks have resumed after Ottawa withdrew its plan to impose a tax on US technology companies.

Under the policy, companies such as Amazon, Google, Meta, Uber and Airbnb would pay a 3 percent tax on revenue from Canadian users.

In a news release, the federal government said it would rescind the tax "in anticipation of a mutually beneficial comprehensive trade arrangement with the United States."

"Today's announcement will support a resumption of negotiations toward the July 21, 2025, timeline set out at this month's G7 Leaders' Summit in Kananaskis," Carney said in statement.

White House press secretary Caroline Leavitt said the decision proved Carney had "caved" to Trump's demands.

"It was a mistake for Canada to vow to implement that tax that would have hurt our tech companies here in the United States," she said.

Chapnick said the statement was "fair from Washington's point of view," though premature from a broader perspective.

"It is best to judge trade negotiations by their outcome, and we have not reached the outcome yet," he said.

Critics of the Carney government have accused it of making too many concessions — on defense, border cooperation and tax sovereignty — without securing tangible progress in return.

Bloc Quebecois Leader Yves-Francois Blanchet said Carney campaigned during the election on finding a way out from under US President Donald Trump's tariffs but has nothing to show for it so far.

In a social media post, Blanchet said Carney's government "made heavy compromises on defense, borders, and counter-tariffs, and now it is backing down on a widely supported measure to protect culture — still with nothing to show for it, no gains or progress for Quebec or Canada, neither on tariffs nor on trade. It's very concerning."

Interim Leader of the New Democratic Party of Canada Don Davies also commented on social media, saying the decision to end the digital services tax amounts to "pure caving in to Trump and his billionaire friends."

"Canada is a sovereign country with the right to make our own tax laws. Abandoning fair taxation of tech giants is unacceptable appeasement," Davies said.

Chapnick rejected the notion that Canada had yielded too much. "Canada's commitment to increase defense spending and to increase attention to border security were utterly consistent with the national interest," he said. "They were not concessions."

Chapnick also said that negotiating with a Trump-led administration comes with its own challenges, regardless of the policy issues at stake.

"The most significant challenge in dealing with the Trump administration is that its positions tend to shift without warning," he said. "This lack of predictability and reliability makes negotiation extremely difficult."

Still, when asked whether Canada's reversal on the digital tax signaled a broader pattern of aligning its policies under American pressure, Chapnick urged restraint.

"I do not think it is prudent to draw conclusions before the negotiations have finished," he said.

Although Carney's move has drawn criticism from some at home, a Canadian expert said it was a well-considered and economically prudent decision.

"(He was) faced with the choice of keeping the digital tax, and losing all hope of further negotiations over tariffs, as well as potentially facing more tariffs as retribution," said Ron Stagg, a professor at Toronto Metropolitan University, who focuses on Canada-US relations. "On the other hand, being subject to criticism in Canada for backing down, Mark Carney chose the economically sensible choice."

Critics, including opposition leaders, have accused Carney of capitulating to US pressure. The White House, in turn, framed the decision as a victory. "Not surprisingly, the Trump government hailed this as a crushing triumph," Stagg said.

"The rhetoric of that government usually deals in absolutes when it wins, so Carney 'caved'," he added. "Successes, on the other hand, are celebrated as brilliant, or biggest, or some such term."

Despite the harsh language, Stagg said he believes the prime minister is unlikely to be distracted. "Recognizing this, Prime Minister Carney will ignore the insult, and bargain as if nothing happened," he said.

"Some business groups in Canada are happy to avoid the potential problems of a new type of tax, one very unpopular with both the Biden and Trump governments," Stagg said.

In the face of political fallout at home, Carney has so far maintained a low-key posture. "Given his past behavior, the prime minister simply says that cancelling the tax is necessary for negotiations to continue and ignores criticism," he said.

gaoyang@chinadailyusa.com