President warns of new tariffs as tensions escalate between key trading partners.
President Donald Trump announced Friday that the United States is officially ending trade negotiations with Canada, citing Ottawa’s decision to implement a digital services tax (DST) as the catalyst. In a post on Truth Social, Trump called the tax “a direct and blatant attack on our Country” and said all discussions are now terminated effective immediately.
“We will let Canada know the tariff that they will be paying to do business with the United States within the next seven day period,” Trump stated.
The move comes just days before Canada’s DST is set to take effect on July 1. The tax, which is retroactive to 2022, targets digital services companies and disproportionately affects large American tech firms such as Google, Apple, Meta, Amazon, and Microsoft. Trump has long criticized digital services taxes, calling them unfair trade barriers.
Economic Fallout and Political Reactions
Canadian Prime Minister Mark Carney responded Friday, emphasizing a desire to continue the negotiation process.
“We’ll continue to conduct these complex negotiations in the best interest of Canadians. It’s a negotiation,” Carney said.
Treasury Secretary Scott Bessent expressed disappointment, saying Canada’s decision to proceed with the DST — especially with retroactive application — undermined months of goodwill efforts.
“This is something from the Trudeau years,” Bessent said on CNBC. “We were hoping the Carney administration would pause the measure during trade talks. They seem not to have.”
Bessent also confirmed that Trump is considering higher tariffs across all Canadian goods if Ottawa moves forward with the tax, though no specific rate was announced.
The economic implications are significant. Canada is the top buyer of U.S. goods, importing $349 billion worth in 2024, while the U.S. imported $413 billion in Canadian goods — making Canada America’s third-largest source of foreign goods.
Calls for De-escalation From Business Leaders
The Canadian business community reacted swiftly to Trump’s announcement. Goldy Hyder, CEO of the Business Council of Canada, warned that the DST risks undermining the country’s critical trade relationship with the U.S.
“In an effort to get trade negotiations back on track, Canada should put forward an immediate proposal to eliminate the DST in exchange for an elimination of tariffs from the United States,” Hyder said.
Candace Laing, head of the Canadian Chamber of Commerce, echoed the concern, calling the tax “self-defeating in nature” and stressing the importance of continued dialogue between the two countries.
“The tone and tenor of talks had improved in recent months. We hope to see that progress continue,” Laing said.
Tariffs on the Horizon
This isn’t the first time Trump has clashed with Canada over trade. During his first term, he imposed sweeping tariffs on steel, aluminum, and autos, some of which were later doubled to 50% for Canadian goods not compliant with the United States-Mexico-Canada Agreement (USMCA).
In response, Canada enacted retaliatory tariffs on U.S. vehicles and a wide array of consumer goods, from household appliances to whiskey and sporting equipment.
While the new DST reignites these trade tensions, a broader wave of tariff increases could soon follow. The Trump administration has set a deadline of July 9 for several countries to either reach new trade agreements or face “reciprocal” tariffs. Several EU countries also have DSTs, though Bessent confirmed the U.S. remains in talks with European leaders to roll those back.
Markets Show Resilience
Despite the rising trade tensions, markets ended the week on a positive note. The S&P 500 and Nasdaq both closed at record highs, each gaining 0.52%, while the Dow climbed 432 points, or 1%.
Still, with a new tariff announcement from the White House expected within a week, businesses and investors are bracing for what could be the start of another chapter in U.S.-Canada trade friction. As the situation unfolds, both sides face increasing pressure to de-escalate — or risk damaging their deeply intertwined economies.