Canada suspends $2 billion digital tax at the last minute, restarting negotiations on US-Canada trade.

The Canadian government announced at the last minute that it would suspend the collection of digital services tax, providing a turning point for the stalled US-Canada trade negotiations. This policy adjustment occurred on the eve of the deadline for the first batch of tax payments (July 1), amid tense US-Canada trade relations. Previously, US President Trump had threatened to terminate all trade negotiations, pointing directly at Canada's unilateral taxation of US technology companies. Canadian Prime Minister Mark Carney emphasized in a statement that the decision to suspend the tax will clear obstacles to restarting US-Canada trade negotiations, with both sides proceeding according to the timeline set at the G7 summit in Canada on July 21, 2025. The digital services tax, originally scheduled to be enacted in 2024 and retroactively effective from 2022, was supposed to levy the first installment of taxes on multinational tech giants such as Amazon.com, Inc. (AMZN.US), Alphabet Inc. Class C (GOOGL.US), and Meta (META.US) on July 1, with a tax rate of 3%. It is worth noting that Ottawa had previously insisted on not suspending the tax due to US opposition, but this policy shift indicates Canada's practical adjustment under trade pressure. Canadian Finance Minister Franois-Philippe Champagne added that canceling the digital tax will significantly advance US-Canada negotiations for a new economic security framework, laying the foundation for job creation and prosperity in Canada. However, he also conveyed the Prime Minister's tough stance: "Canada will invest the necessary time to reach an agreement, but will not delay indefinitely." At the core of this tax dispute is Canada's attempt to fill the tax gap of large tech companies, which have generated enormous profits from the Canadian market but have not fulfilled their tax obligations. Ottawa has consistently emphasized that this tax is a transitional measure in line with international multilateral agreement negotiations, with the ultimate goal of establishing a globally standardized digital tax framework. US Treasury Secretary Scott Bennet had previously expressed opposition in an interview, stating that Canada's tax policy is discriminatory: it is unfair to US companies and implements retroactive taxation. He revealed that US estimates show that Canada's forced retroactive collection would involve approximately $2 billion in taxes, "a practice unseen in the digital tax practices of EU member states." Behind the US-Canada trade friction lies their significant economic scale; according to the US Trade Representative's Office data, trade in goods between the two countries reached $762 billion in 2024, and any tariff adjustments will have significant ripple effects. This sudden policy reversal not only exposes the governance dilemma of international tax rules in the digital age but also reflects the deep-seated game between North American free trade partners in the digital economy. As the negotiation deadline of July 21 approaches, whether the US and Canada can reach consensus on key issues such as digital tax and supply chain security will be an important indicator to observe the direction of North American economic integration.