Trump Terminates US-Canada Trade Talks: A Trade Storm Triggered by Digital Tax

On June 27, 2025, US President Trump suddenly announced on the social media platform Truth Social that the United States would immediately terminate all trade negotiations with Canada and threatened to unveil new tariff measures on Canadian goods within seven days. The spark that ignited this storm was Canada's Digital Services Tax (DST) bill, set to take effect on June 30—a 3% tax policy targeting US tech giants. This seemingly sudden trade dispute is, in fact, a microcosm of the struggle for dominance over rules in the digital economy era and exposes the deep-seated rifts in US-Canada trade relations.

I. The Digital Tax Dispute: From a Technical Issue to a Sovereignty Battle

The core of Canada's Digital Services Tax bill is to impose a 3% tax on large tech enterprises with global annual revenues exceeding 1.1 billion Canadian dollars and Canadian annual revenues exceeding 20 million Canadian dollars. The tax covers core areas of the digital economy, such as online advertising, social media, and data transactions. Notably, the bill stipulates that the tax is retroactive to 2022, meaning that US tech giants like Google, Apple, and Amazon are required to pay approximately 2.7 billion US dollars in back taxes by June 30 and over 1 billion US dollars annually thereafter.

The United States has reacted strongly. The Trump administration views the Digital Services Tax as a "non-tariff trade barrier." Treasury Secretary Bessent bluntly called Canada's practice of "retroactive taxation" "unfair" and pointed the finger at the European Union—France, Italy, and other countries have already implemented similar taxes, and the EU's Digital Markets Act has incorporated digital taxation into its legal framework. In his statement, Trump accused Canada of "emulating the EU," in reality hinting at the challenge to US tech hegemony posed by the emerging global digital tax system.

Behind this dispute lies a fierce struggle for dominance over digital economy rules. US tech companies account for over 70% of the global digital services market, yet traditional tax systems struggle to tax their cross-border digital revenues. Economies like Canada and the EU are attempting to restructure tax fairness through digital taxes, while the United States seeks to maintain the "super-national treatment" of its tech firms. As Daniel Béland, a professor at McGill University in Canada, put it, "This is not just a tax issue; it's a battle for national sovereignty in the digital age."

II. Historical Grievances: The Ripple Effects of Dairy and Steel-Aluminum Tariffs

The digital tax dispute is not an isolated incident. In his statement, Trump specifically mentioned Canada's "as high as 400%" tariffs on US dairy products, a historical grievance dating back to the North American Free Trade Agreement (NAFTA) negotiations. Canada protects its domestic dairy industry through a supply management system, making it difficult for US dairy products to enter the Canadian market. While the 2018 United States-Mexico-Canada Agreement (USMCA) did not fully resolve this issue, it sowed the seeds for future trade frictions.

A more direct trigger was the steel and aluminum tariffs. On June 3, 2025, the United States, citing "national security" concerns, raised tariffs on steel and aluminum imports from Canada from 25% to 50%. The Canadian Steel Producers Association warned that this move would "destroy the North American supply chain," while Canadian Prime Minister Carney condemned the US measures as "illegal and unreasonable." Although Canada promised to reduce domestic trade barriers through the "Canadian Economic Integration Act," the United States was clearly dissatisfied with the pace of reform.

III. Economic Costs: A Lose-Lose Scenario with Chain Reactions

US-Canada trade volume reaches 1 billion US dollars per day, with 80% of Canada's exports relying on the US market. If the United States imposes tariffs, industries such as Canadian automotive parts (accounting for 40% of the US supply chain) and crude oil (accounting for 40% of US imports) will suffer severe blows. The Canadian Automotive Industry Association predicts that tariffs could lead to a 15% decline in North American automotive production and an unemployment rate surging above 8%.

The United States will not emerge unscathed. Canada is the second-largest supplier of crude oil to the United States, and tariffs driving up energy costs will exacerbate US inflationary pressures. Tech giants face a double blow: they must pay hefty digital taxes while seeing their profits in the Canadian market shrink due to tariffs. Morgan Stanley estimates that if a full-scale trade war erupts, the tech sector of the S&P 500 index could plummet by 12%.

IV. Negotiation Tactics or All-Out Confrontation?

Trump's "maximum pressure" strategy has sparked controversy. Some analysts argue that this is a negotiating tactic to force Canada to concede—in the 2018 steel and aluminum tariff dispute, the United States used a similar strategy to pressure Canada into accepting USMCA amendments. However, Canadian Senator Hassan Yussuff pointed out, "Trump is trying to replicate his 2018 success, but Canada is no longer the same."

Canada has adopted a tough stance. Finance Minister Freeland explicitly refused to delay the implementation of the digital tax, while Prime Minister Carney emphasized that Canada would "continue negotiations in the best interests of Canadians." More notably, Canada is accelerating the signing of a security and defense agreement with the EU in an attempt to reduce its dependence on the United States. This strategic shift has elevated the US-Canada trade dispute beyond economic concerns, making it a microcosm of geopolitical rivalry.

V. Global Impact: Digital Tax as the New Battleground for Trade Wars

The US-Canada dispute reflects the profound transformation of the global digital tax system. The Organization for Economic Cooperation and Development (OECD)-led global digital tax reform has stalled due to US opposition, prompting countries to take unilateral action. France has already imposed a digital services tax on tech companies, the UK plans to implement a similar policy in 2026, and emerging economies like India and Brazil are also considering legislation.

This dispute is likely to trigger a chain reaction. European Commission President von der Leyen warned that if US-EU trade talks fail, the EU will impose tariffs on 95 billion euros worth of US goods and restrict US tech companies' access to public procurement contracts. The global trade system is shifting from "commodity tariff wars" to "digital rule wars," and the US-Canada dispute is merely the prelude to this transformation.

VI. A New Normal of Trade in the Era of Rule Reconstruction

Trump's termination of US-Canada trade talks is, in essence, a manifestation of the failure of traditional trade rules in the digital economy era. As digital services surpass physical goods as the core of trade and the influence of multinational tech companies exceeds that of traditional manufacturing, national tax sovereignty, data sovereignty, and market access rules are inevitably being reshaped. This storm reminds us that in today's digital technology-driven global economy, trade disputes are no longer confined to tariff barriers but delve into the deep-seated struggle over rule-making. How to achieve win-win outcomes under new rules will be a question that all economies must answer in this era.