By: Jerome Brookshire

Canadian Prime Minister Mark Carney confirmed late Sunday evening that trade talks with the United States have officially resumed, following Canada’s decision to rescind its contentious Digital Services Tax, a move widely seen as a diplomatic concession to President Donald Trump. The reversal, announced just hours before the tax was scheduled to take effect on Monday, diffuses what had escalated into a rapidly intensifying trade standoff between Ottawa and Washington.

Carney’s office issued a statement following a Sunday phone call between the two leaders, stating that the tax withdrawal “will support a resumption of negotiations toward the July 21, 2025, timeline set out at this month’s G7 Leaders’ Summit in Kananaskis.” As The Associated Press reported on Monday, the about-face marks a striking moment in Carney’s tenure, signaling a pragmatic—if controversial—course correction in the face of mounting economic pressure and a combative U.S. administration.

The Digital Services Tax, a 3% levy on revenue derived from Canadian users by large online platforms, had been scheduled to go into effect on July 1 and apply retroactively to 2022. The Canadian policy, designed to ensure that multinational tech giants contribute a fair share of tax revenue in the markets they profit from, targeted companies such as Amazon, Google, Meta, Uber, and Airbnb. According to estimates cited by The Associated Press, the retroactive scope of the tax would have produced a $2 billion tax liability for U.S.-based firms.

President Trump, in a characteristically blunt post on his personal social media platform last Friday, blasted the planned tax as “a direct and blatant attack on our country.” He accused Ottawa of “punishing American innovation” and suspended all trade negotiations with Canada in response. “You don’t get to tax our companies and then come looking for deals,” Trump wrote, adding that Canada was “testing our patience and our power.”

Within 48 hours, Carney blinked.

Carney, a former governor of both the Bank of Canada and the Bank of England and known for his technocratic poise, had previously attempted to strike a firm but collegial tone with Trump during a May visit to the White House. However, his government’s reversal on the Digital Services Tax is already being framed by analysts as a political concession to Trump’s pressure tactics.

“This is a clear victory for President Trump and for the U.S. tech lobby,” said Daniel Béland, a political science professor at McGill University in Montreal, in comments to The Associated Press. “At some point, this move might have become necessary in the context of broader trade negotiations. But Prime Minister Carney acted now to appease President Trump and secure simply a resumption of dialogue—nothing more.”

Béland further argued that the optics make Carney appear vulnerable to Trump’s well-known pattern of diplomatic brinkmanship. “President Trump forced PM Carney to do exactly what big tech wanted. U.S. tech executives will be very happy with this outcome,” he said.

Carney, however, framed the decision as a tactical pause rather than a policy reversal. “Canada remains committed to a fairer digital economy,” he said in his statement. “But we must also protect our national economic interest in the context of evolving trade dynamics with our most important partner.”

Trump’s suspension of talks was the latest in a series of whiplash-inducing escalations in his renewed trade war with Canada since returning to the White House in January for a second term. As The Associated Press has tracked, bilateral relations have been tumultuous, with Trump reviving tariffs and threatening punitive measures reminiscent of his first-term playbook.

Key among these actions are 50% tariffs on Canadian steel and aluminum exports; 25% tariffs on auto imports; and a blanket 10% tariff on imports from most nations, with a July 9 deadline looming for potential increases.

Also included are separate 25% tariffs on Canadian and Mexican goods, framed as part of a campaign to curb fentanyl smuggling, despite criticism that trade sanctions are ill-suited to address a public health and criminal justice issue.

Although the 2020 U.S.-Mexico-Canada Agreement (USMCA), signed during Trump’s first term, still shields certain sectors, many others—particularly in agriculture, energy, and technology—have been left exposed to the vagaries of political rhetoric and policy volatility.

The Associated Press report noted that Trump’s G7 appearance in Alberta earlier this month did little to soothe tensions. The U.S. president reportedly joked to aides and attendees that Canada might one day be “absorbed as a U.S. state,” further underscoring the asymmetrical power dynamic currently shaping North American diplomacy.

Within Canada, the retreat has drawn mixed reactions. Pro-business groups praised the move as a necessary compromise to protect broader trade stability. However, opposition leaders and digital equity advocates criticized it as a capitulation to American corporate and political interests.

NDP leader Jagmeet Singh issued a scathing statement late Sunday, accusing Carney of “letting Silicon Valley billionaires dictate Canadian tax policy.” Green Party officials echoed that concern, calling the rollback “a betrayal of Canadian sovereignty” and warning that it sets a precedent for future concessions.

Still, Finance Minister François-Philippe Champagne defended the decision in remarks to The Associated Press, emphasizing that it “allows for the negotiations of a new economic and security relationship with the United States to make vital progress.”

Privately, Canadian officials say the withdrawal of the tax was a calculated move designed to preserve leverage in broader trade talks, particularly as the July 21 deadline approaches. “The digital tax is not off the table indefinitely,” one senior source said. “It’s suspended as part of a broader strategic framework.”

With trade negotiations now slated to resume in earnest, the path forward remains uncertain. As The Associated Press report highlighted, Trump’s unpredictability—and his tendency to govern by fiat rather than by formal negotiation—makes traditional diplomatic planning increasingly complex.

If no agreement is reached by July 9, Trump is expected to escalate tariffs further, particularly on Canadian agricultural and consumer goods. That prospect has alarmed trade-dependent regions across Canada, particularly in Ontario and British Columbia, where cross-border commerce constitutes a substantial portion of provincial GDP.

The July 21 target date for a new trade framework was set during the G7 Summit in Alberta and remains both ambitious and ambiguous. Whether it marks a final agreement or another arbitrary deadline remains to be seen.

As markets open Monday, economic analysts expect a short-term rally in Canadian equities, particularly among firms reliant on U.S. market access. However, the underlying volatility of the bilateral relationship continues to cast a long shadow.

For now, Carney’s government has bought time. But it has done so by sacrificing a tax policy long promoted as a tool of digital equity and fiscal modernization. Whether that price will prove worth paying may depend not only on the final contours of a new trade deal—but on how effectively Canada can reclaim the diplomatic initiative in future dealings with Washington.