In a move that should surprise no one, the Trump administration is moving ahead with retaliatory tariffs over Canada’s Digital Services Tax.
The Trump administrations inflationary tariffs on other countries has been in the news for obvious reasons. They are arbitrary, a violation of international trade agreements, destructive for all involved, and do a heck of a job of burning the very bridges so many countries worked so hard to forge. Canada, of course, is far from alone in getting hit with these by the bullying Trump administration, but is, along with Mexico, baring the biggest brunt of them despite being the closest ally to the United States. For many, it marks one of the biggest international betrayals in living memory.
In fact, it’s pretty difficult to keep up with all of the tariffs. There’s the across the board 25% tariffs that are said to go into force within weeks, the 25% aluminum tariffs that are said to take place close to the same time, a “study” is being conducted on additional tariffs within two months time, and the tariffs on auto manufacturing. That’s just what we know of so far since the Trump administration is signalling that he’s not slowing down these world economy destroying tariffs.
While those tariffs were quite undeserved and illogical, a new development that we are seeing about a new wave of tariffs, is, well, a long time coming. According to reports we are seeing, the Trump regime is issuing retaliatory tariffs on countries (including Canada) that imposed a Digital Services Tax. From Global News:
U.S. President Donald Trump has signed a memorandum to impose tariffs on countries that levy digital service taxes on U.S. technology companies, a White House official said.
Another official, providing details of the order, said Trump was directing his administration to consider responsive actions like tariffs “to combat the digital service taxes (DSTs), fines, practices, and policies that foreign governments levy on American companies.”
“President Trump will not allow foreign governments to appropriate America’s tax base for their own benefit,” the official said.
The memo directs the U.S. Trade Representative’s office to renew digital service taxes investigations that were initiated during Trump’s first term, and investigate any additional countries that use a digital tax “to discriminate against U.S. companies,” the official said.
Trump said last week that he would impose tariffs on Canada and France over their digital service taxes, and a White House fact sheet released at the time said that “only America should be allowed to tax American firms.”
While that last paragraph is quite illogical, the rest of that was a long time coming. The backstory is basically that countries from around the world were in talks about how to impose taxes on internet services. The idea is that there should be a way to fairly tax them. Notably, the US was involved in these talks to discuss what would be fair and what wouldn’t be fair. So far, so good.
Well, the problems started to arise when the Canadian government arbitrarily decided that the talks weren’t going fast enough and started to move towards unilaterally imposing their own Digital Services Tax without seeking approval from anyone else. Understandably, the US tried to urge Canada to reconsider because there are various trade agreements that could be violated should Canada proceed with this foolhardy idea. Canada’s response basically amounted to “screw international norms, I do what I want!” It wouldn’t be surprising that the US reacted by giving Canada a “WTF?” reaction.
What followed was the US sending a series of warnings and letters not only urging Canada to reconsider these moves and warning that if Canada proceeds with this that ‘all available tools’ would be deployed to put a stop to Canada’s illegal actions.
Sensing the impending disaster and knowing that they could become collateral damage in all of this, Canadian businesses begged the government to not go through with these taxes. At the time, some out there might have thought that although smaller news organizations were completely ignored during the link tax debate and Canadian creators were completely ignored (and even attacked) during the Online Streaming Act debate, if there is one kind of lobbyist that the Canadian government wouldn’t ignore, it’s established Canadian businesses. Well, those hopes were soon dashed when the Canadian government flipped off the urgent pleas of Canadian businesses and implemented the Digital Services Tax anyway.
In response, Canadian businesses were left stunned and exasperated at the situation. The Canadian Chamber of Commerce and the Retail Council of Canada basically responded by effectively saying “we’re completely fucked.”
The US governments response was entirely unsurprising. Lawmakers urged the US government to use all available tools to fight the Digital Services Tax and to act quickly and decisively. Google, for their part, announced that they would be passing the cost of the Digital Services Tax onto consumers in the interim.
Shortly after, the US requested a trade dispute consultation which is basically the first step in initiating trade retaliation against Canada.
Then, after all of that, Donald Trump got elected president (yes, all of that happened during the Biden administration). So, the question then became whether or not Trump would continue this dispute. My personal reaction at that question at the time was basically that I don’t see why not. I mean, Trump was already banging the tariff drum anyway, so why wouldn’t he? At least in that case, Trump would have a point to that.
Well, if there was any doubt that Trump would continue on this fight in some way, those doubts were quickly erased back in January when Trump signed an executive order seemingly signalling that the regime would go after Canada’s Digital Services Tax.
Unlike the other tariffs that seem to be arbitrary and done just for the hell of it, in this case, the Trump administration actually has standing here. What’s more is the fact that Canada really doesn’t have any legal tools to fight against this, either. There’s nothing actually inside the USMCA/CUSMA that Canada can use that would effectively make a difference here. The only real move is for Canada to simply rescind the Digital Services Tax. I know parliament isn’t exactly in a position to do anything quickly for the time being (what with all the proroguing going on), but that’s the reality of it all right now.
What’s more, I’ve seen reports elsewhere that suggest that this retaliatory tariff coming came suddenly and out of the blue without any real reason, but that’s factually untrue. This action on the US has been on the horizon since at least July of 2022. Some supporters of the Digital Services Tax out there are trying to ignore all the actions that led us to this point, but there has been a lot of buildup to this point and the steps that got us here are well documented (at least by us and the American government). Some of the other reports suggest that this resistance has been exclusively from “Big Tech”, but as I demonstrated above, Canadian businesses were furious with the Canadian government over this as well. It’s not just “Big Tech” that are opposed to this.
Regardless, this is putting a huge amount of pressure on, at minimum, Canada’s Digital Services Tax. I don’t see how that can be disputed at this point in time. With Canada already having enough problems on its hands in dealing with the Trump regime, it’s going to be really difficult to continue to maintain the Digital Services Tax over the long term. The last thing Canada needs to have at this point is any weaknesses exposed on the trade front. The Digital Services Tax is a huge weakness and the US is happily exploiting that at this point in time. I can only see this tax getting killed off sooner or later if the Canadian government finally comes to their senses on this matter. Only time will tell what the specific set of circumstances would be that would kill the tax off, though.
