Trump ends trade talks with Canada, threatens higher tariffs

President Trump said Friday he was suspending trade talks with Canada and would announce within a week a higher tariff rate on the U.S.’s northern neighbor.

In a post on social media, Trump said he was cutting off negotiations with Canada after its government confirmed it would keep in place a digital services tax despite a recent G7 agreement on such levies.

“Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately. 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. Thank you for your attention to this matter!,” Trump wrote on Truth Social.

Digital services taxes are taxes on tech companies from countries where their products are used. Canada is requiring the first payment of its tech tax on Monday, which will charge 3 percent of revenues above $14.57 million, or 20 million Canadian dollars.

House Republicans’ domestic agenda bill included a retaliatory measure known as Section 899 specifically to ward off countries from instituting digital taxes against U.S. tech giants.

The bill called the taxes “unfair” and “discriminatory” and threatened a retaliatory U.S. tax of up to 20 percent on investors from countries with digital services taxes.

However, following an agreement with the Group of Seven countries with big economies, Treasury Secretary Scott Bessent called on the Senate on Thursday to remove the U.S. retaliatory tax from their version of the bill.

He said that an agreement had been reached that would “[preserve the U.S.] tax base” and that would exempt U.S. companies from a global minimum tax agreement.

“OECD Pillar 2 taxes will not apply to U.S. companies,” Bessent wrote on social media Thursday.

Several international business groups representing foreign investors in the U.S. responded positively to the announcement.

Canada’s big tech tax has been in the works for a while. Some commentators on Friday thought President Trump’s social media announcement indicated a lack of planning on the part of the administration, which delivered country-specific tariffs in early April.

“This is a sign the work process on trade from the 2024-2025 presidential transition to April 2nd was horrifically flawed in even more ways than we thought,” Alan Cole of the Tax Foundation wrote on Friday.

Getting agreement on how to tax big tech, whose products are used globally but whose headquarters are largely in the U.S., has been the driving force behind different international taxation initiatives in recent years.

One initiative has been proceeding at the Organisation for Economic Cooperation and Development (OECD), a group of wealthy countries, and there’s another rival framework that’s been slowly moving at the United Nations.

The OECD framework has two main components, one that’s about the location of where taxes are levied and another that puts in place a global minimum tax of 15 percent.

The first component is dead in the water while the global minimum tax of 15 percent has been put in place internationally, although the U.S. has not implemented it due to Republican opposition.

Republicans did leave the corporate alternative minimum tax (CAMT) negotiated under the Biden administration in place, leaving the domestic U.S. tax structure for international corporate taxation largely consistent with the international framework, multiple sources have told The Hill.

“Pillar 1 is dead, so what we get instead is a set of digital services taxes, and that might increase in number,” University of Michigan tax law professor Reuven Avi-Yonah told The Hill. “The administration might try to impose tariffs and do other things in order to dissuade more countries from continuing.”