Canada’s Digital Services Tax has been the subject of trade tensions – and now Trump signed an executive order going after schemes like it.
A major point of trade contention between Canada and the US has long been Canada’s Digital Services Tax. While the Canadian government has taken a head in sand approach where they kept insisting on a “see no trade tension, hear no trade tension” approach to the whole affair, ignoring the complaints from the US government was always a really stupid idea. Indeed, the US has sent numerous warnings and letters saying that Canada’s Digital Services Tax violates the USMCA/CUSMA.
By August of last year, the US had seemingly lost its patience with Canada being belligerent on the issue. As a result, they moved forward with a trade dispute consultation over the issue which is basically one of the steps needed to slap tariffs on Canada. For some, the question is what Trump would do once he is in office. For me, the only question mark is whether or not Trump would forget about this particular grievance (among the countless grievances he has about everything) more than anything else. After all, the push against Canada’s Digital Services Tax has long been a bipartisan concern.
Well, if there is any possibility that Trump has forgotten all about this element on international trade, that possibility was basically wiped out. Today, we are learning that Trump has signed an executive order targeting things like Canada’s Digital Services Tax (even though Canada wasn’t explicitly mentioned). Here’s the text of the executive order:
Sec. 2. Options for Protection from Discriminatory and Extraterritorial Tax Measures. The Secretary of the Treasury in consultation with the United States Trade Representative shall investigate whether any foreign countries are not in compliance with any tax treaty with the United States or have any tax rules in place, or are likely to put tax rules in place, that are extraterritorial or disproportionately affect American companies, and develop and present to the President, through the Assistant to the President for Economic Policy, a list of options for protective measures or other actions that the United States should adopt or take in response to such non-compliance or tax rules. The Secretary of the Treasury shall deliver findings and recommendations to the President, through the Assistant to the President for Economic Policy, within 60 days.
The order contains language similar to the bi-partisan letter about the Digital Services Tax (which you can read about here or read the letter directly here (PDF)). Part of that letter reads as follows:
Yet, despite the engagement by your office, by other U.S. government officials across the Administration, and by members of Congress, Canada continues to move forward with a discriminatory digital services tax (DST) that targets American businesses. According to the Bureau of Economic Analysis, nearly 8 million Americans work in the digital economy. We must not allow foreign governments to target U.S. companies and the Americans they employ simply because their hard work and innovation have led them to become global leaders in this critical sector.
Um, yeah, it looks like Trump hasn’t forgotten at all.
To be clear here, this is a situation of the Canadian governments own making. They ignored the numerous warnings and letters about this and, instead, simply looked dead eye in the camera and droned about how the Digital Services Tax is in compliance with all of Canada’s international trade obligations. Simply saying that doesn’t make the trade violations magically go away. Trade retaliation wasn’t a matter of “if”, but “when”. What’s more, Canada really doesn’t have any defence against the trade retaliation in this case. The Canadian government only has themselves to blame for this situation.
It’s not as though the government wasn’t warned about this in Canada. Plenty of observers and experts have long expressed their concerns of where things would invariably go should Canada moves ahead with this. Unfortunately, much like the concerns about the Online Streaming Act and Online News Act, those concerns were completely ignored by the government jamming their fingers in their ears and screaming “LALALA I can’t hear you!”. Sooner or later, the government is going to learn that ignoring problems and hoping they go away on their own is not really a viable strategy for international trade.
Now that Trump has signed an executive order, it seems that this trade retaliation possibility continues to be on.
(Via @Mgeist)
