Afrasianet - Ahmed Abu Al , Tarabish - US President Donald Trump announced yesterday an immediate suspension of all trade negotiations between the United States and Canada, a decision in response to Canada's implementation of a 3% digital services tax (DST) on major American technology companies.
The US administration called the tax a "flagrant attack" and announced its intention to impose new tariffs within 7 days, reignited a trade crisis that could undermine economic stability between the two allies, according to the Associated Press.
US Decision: Immediate Suspension and Direct Threat
The US president said in a post on the platform "Truth Social" quoted by Reuters, that the decision came: "Based on this scandalous tax, we announce the immediate termination of all trade negotiations with Canada. We will inform Canada of the fees it will pay within 7 days."
Trump described Canada as a "hard-to-trade country," accused Ottawa of imitating European tax policies that unduly burden U.S. tech companies, and claimed, as reported by Fox Business, that Canada imposes tariffs of up to 400 percent on U.S. dairy products.
Official investigation and retaliatory fees
US Treasury Secretary Scott Peacenet confirmed in remarks quoted by Reuters that the Office of the US Trade Representative will launch an investigation under Section 301 of the Trade Act, in preparation for imposing retaliatory duties of up to two billion US dollars a year on Canadian exports.
Biscent added that the US administration is working to speed up negotiations with other partners such as China, India, the European Union and Japan, noting that "new agreements can be reached by Labor Day."
Canada Responds: No Retreat from Tax Sovereignty
Canadian Prime Minister Mark Carney, who took over from Justin Trudeau in March 2025, responded with remarks quoted by Reuters, saying: "We will continue to engage in complex negotiations... in the interests of Canadian workers and businesses, but not under threat or coercion."
Canadian Finance Minister Francois-Philippe Champagne said in an interview with CTV News on June 19: "We have all the trump cards. We will not suspend the tax under pressure."
Bloomberg also reported that Ottawa has begun legal consultations to consider resorting to dispute settlement mechanisms within the North American Free Trade Agreement (USMCA), or take the issue to the World Trade Organization if the United States follows through on its threats.
Professor Frank Jiang, Professor of International Trade at Carleton University, said: "From the perspective of international trade law, Canada has the full right to impose sovereign taxes on digital profits made within its borders. It's not about anti-Americanism, it's about adapting tax policies to the reality of the digital economy."
Digital tax: retroactive and expensive procedure
According to Reuters, the Digital Services Tax Act, which was passed by the Canadian Parliament in June 2024, entered into force on the 28th of the same month, and will be applied retroactively from the first of January 2022.
The 3 percent tax is levied on revenue generated by digital services aimed at Canadian users, if the company's global revenue exceeds 750 million euros (about $879 million) and domestic revenue C$20 million (about $14.6 million).
The Canadian government, according to official financial documents quoted by Bloomberg, expected the tax to achieve:
• CAD 7.2 billion between 2023 and 2027 (equivalent to about US$5 billion).
• $500 million annually from U.S. companies such as Amazon, Meta, Alphabet, and Uber.
• $2 billion retroactively matures by June 30, 2025.
Reuters noted that tech companies have already begun passing on this cost to the Canadian consumer, with Google and Amazon raising their fees by 2.5% to 3% on ads and services aimed at the Canadian market.
Analyzing the move, Professor Jiang said: "It is true that the tax may translate into higher consumer prices, but the broader gain for Canada is to balance the economic power of global tech companies with the rights of countries to regulate their markets. It's a principled battle rather than a financial one."
Financial markets ignore escalation
Despite the escalating political tensions between Washington and Ottawa, the US threat to impose retaliatory tariffs of up to two billion US dollars annually, in addition to the official suspension of trade negotiations between the two countries, the US financial markets have shown remarkable flexibility in dealing with these developments, which may indicate investors' temporary confidence that the escalation will not depart from the political framework.
The New York Post reported that US markets closed with notable gains:
• The S&P 500 rose 0.5% to 6,173.07 points.
• The Nasdaq rose 0.5% to 20,273.46 points.
• The Dow Jones added more than 400 points, or about 1%.
MarketWatch attributed these gains to the strong performance of artificial intelligence stocks, and investors' expectations of an expected rate cut by the Federal Reserve.
But analysts have warned that any further escalation with Canada could disrupt supply chains and weigh on consumption.
Gradual political and trade escalation
On February 1, 2025, the Trump administration imposed tariffs of 25% on most Canadian goods, as well as 10% on energy exports, justifying the move with concerns about border security and narcotics coming from Canada.
Ottawa retaliated immediately with tariffs on C$30 billion (about $21.88 billion) worth of U.S. goods, then expanded them to C$155 billion (about $113.05 billion) in 21 days, Reuters reported.
This coincided with a wave of public anger in Canada, where boycott campaigns were launched against American products, and polls published in the Canadian "CBC" showed that between 65% and 90% of Canadians stopped buying American products or traveling to the United States.
In the midst of the escalation, Trump has sparked controversy with repeated statements about the possibility of annexing Canada as the 51st U.S. state.
Former Canadian Prime Minister Justin Trudeau responded, in a statement quoted by Al Jazeera English, saying: "There is not a single chance in hell that Canada will become part of the United States."
The results of a poll conducted by Angus Reid showed that 82 per cent of Canadians completely rejected the idea, while only 13 per cent conditionally supported it.
U.S. Ambassador to Canada Pete Hoekstra told the Washington Post: "I spend most of my time calming fears, not negotiating. Unfortunately, the statements precede diplomacy."
Failure at the Summit of Seven
As tensions persisted, the Group of Seven summit presented a new opportunity for dialogue, but it turned into a new disappointment.
At the summit hosted by Canada in Alberta from 11 to 16 of this month, Trump and Carney agreed, according to Reuters, on a "30-day negotiating framework" to try to reach a balanced trade solution.
But Trump withdrew from the summit early due to an escalation in the Middle East between Iran and Israel, and no tangible results were achieved, followed by the decision to suspend the talks entirely.
Open scenarios and complex tensions
Ahmed Ismail, a researcher in international economics at the University of Ottawa, believes that the relationship between Canada and the United States is entering a sensitive and complex stage, as the trade dispute has gone beyond the issue of a digital tax and has become a real test of the limits of economic sovereignty and the ability of international trade law to contain tensions between allies.
"In the coming days, Ottawa and Washington will find themselves at a crossroads," Ismail said. Washington, as expected, will announce within a week an expanded list of tariffs that could include dairy products, wood, automobiles, and digital services, and this will open the door to a sharp economic escalation.
He added that Canada does not intend to back down under pressure, noting that the Canadian government, according to official statements quoted by Bloomberg, "considers the digital tax part of its economic sovereignty and sees no legal justification for its abolition." He also stressed that Ottawa is seriously considering the option of filing a formal trade lawsuit under the USMCA agreement, or resorting to the World Trade Organization, a legal path that could extend for months and complicate the relationship further.
With regard to the markets, Ismail explained that investors are waiting for the impact of the crisis on inflation indicators, especially with the rise in the core personal consumption expenditure index (PCE) to 2.7%, according to MarketWatch, noting that "any further escalation may disrupt supply chains and hit consumer confidence, which will negatively affect spending behavior in vital sectors."
He warned that the repercussions of this dispute may not be limited to North America, but may extend to global markets by hitting cross-border supply networks, especially in energy, rare earths, and digital services.
Ismail concluded: "We are facing a pivotal moment. If tensions are not quickly contained, the confrontation could turn into a structural crisis, breaking the decades-long trade and political balance between Canada and the United States.