US President Donald Trump has declared an end to trade negotiations with Canada, citing a new tax policy targeting major tech companies as the reason for his decision.
This announcement, made on social media, comes as the two countries were working towards reaching a trade deal by mid-July.
However, tensions have risen between the neighboring nations after Trump initiated a trade war earlier this year and threatened to use “economic force” to annex Canada. As a result, both countries have imposed tariffs on each other’s goods.
In his recent tweet, Trump stated that talks were being terminated due to an “egregious tax” on tech companies and that he would be announcing new tariffs on goods crossing the border within the next week.
He wrote, “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.”
During a press briefing, Trump also stated that the US holds the upper hand in the negotiations, saying, “Economically, we have such power over Canada. I’d rather not use it.”
Prime Minister Mark Carney, on the other hand, suggested that talks would continue despite Trump’s announcement. He stated, “We will continue to conduct these complex negotiations in the best interest of Canadians.”
One of the main issues in the trade talks has been Canada’s 3% digital services tax, which was implemented last year and is set to be enforced on Monday. This tax is estimated to cost American companies, such as Amazon, Apple, and Google, over $2 billion annually.
While other countries, including the UK, France, and Italy, have similar taxes in place, Canadian officials had hoped to address this issue in the trade talks with the US.
There were hopes that the good relationship between Trump and newly elected Carney would aid in the negotiations, but Trump’s latest move has cast doubt on the possibility of a future deal. However, this is not the first time Trump has used social media to gain leverage in talks or speed up negotiations.
Candace Laing, CEO of the Canadian Chamber of Commerce, commented on the situation, saying that last-minute surprises should be expected as the deadline for a deal approaches. She also expressed hope that progress would continue in the talks.
Senator Hassan Yussuff, who sits on a Canada-US trade advisory council, believes that Trump is trying to gain leverage in the negotiations by putting pressure on Canada. He stated, “I think we don’t react to it.”
Some in Canada’s business community have called for Carney to scrap the digital services tax, with Goldy Hyder, president of the Business Council of Canada, stating that it undermines the country’s relationship with the US and should be lifted to get trade negotiations back on track.
At the G7 summit in June, Trump and Carney had set a 30-day deadline for a trade deal to be reached. It is unclear if Trump’s recent comments have affected this timeline.
During his first term, the White House strongly opposed the idea of taxes on digital services, but the issue was left unresolved in the trade deal between the US and the UK earlier this year. This suggests some flexibility on the issue.
Inu Malak, fellow for trade policy at the Council on Foreign Relations, believes that Trump’s threat is a move to ramp up pressure in the negotiations, but also a sign that he has refocused on Canada, which could potentially open the way for a deal. She stated, “It does provide a bit of an opening… but it does provide some space for them to hasten those talks.”
The US is Canada’s top trade partner, with over $400 billion in goods being bought last year under a longstanding free trade agreement. However, Trump has imposed a new 25% tariff on this trade, citing concerns about drug trafficking at the border. This, along with other tariffs on cars, steel, and aluminum, has further strained relations between the two countries.
Despite Trump’s announcement, the stock market rebounded with the S&P 500 closing at a record high.