US President Donald Trump just upped the ante on US-China trade relations. He randomly ended talks with Canada over its recent digital services tax that specifically targets US tech companies. The ruling released on Thursday has rattled the trading arena. It has sent US-Canada relations crashing back into the depths, after a couple years of comparative normalcy.
Trump characterized Canada’s tax as “a direct and blatant attack on our country,” indicating the administration’s firm stance against what it perceives as unfair trade practices. He made headlines with his declaration that negotiations would not return until “they clean up their act.” The cancellation of discussions casts doubt on the fate of one of America’s most important trade relationships.
Impact on US-Canada Relations
Currently, Canada is the United States’ second-largest trading partner, after Mexico. It additionally ranks first as the overall largest market for US exports. In just 2022, Canada imported $349.4 billion of goods from the US and turned around and exported over $412.7 billion in goods back. For instance, the abrupt end to trade negotiations now poses a major hurdle. This is especially troubling in light of the extensive economic interconnectedness that exists between the two countries.
The Canadian government is committed to good faith negotiations. Trade and Development Agreement Negotiators are primarily focused on reaching a final agreement that is in the best interest of Canadian workers and businesses. A spokesperson from Mr. Carney’s office stated, “The Canadian government will continue to engage in these complex negotiations with the United States in the best interests of Canadian workers and businesses.”
This is all the more surprising given that Canada recently adopted a tax. This new tax charges a 3% tax on revenue made from digital services over $20 million earned from Canadian users in a year. The new tax—or toll, as it’s being called—has been met with strong condemnation in Washington, moving officials to start working on retaliatory measures.
“Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately.” – Donald Trump
Broader Trade Negotiations Underway
Even as Canada tariff tensions rise, the Trump administration is still actively negotiating trade deals with other countries. Yet on the same day that Trump announced his decision to pull out of talks with Canada, administration officials were simultaneously pursuing talks with both India and Japan. But these countries are indeed having active negotiations with the US. This move reaffirms their plan to expand the state’s trade relationships beyond its borders.
Mr. Bessent, a senior official in the Trump administration, mentioned that progress is being made in discussions concerning shipments of Chinese rare earth minerals and magnets to the US. China has since pledged to remove the ban it introduced on April 2. Onboard shipments aren’t moving as fast as they were supposed to.
Furthermore, the US submitted a new proposal to the European Union on Thursday, signaling ongoing efforts to renegotiate trade terms with European partners.
“So we have countries approaching us with very good deals.” – Mr. Bessent
Future Trade Prospects
The Trump administration lost a policy fight with Canada. There are indications that their trade strategy is starting to pay off in other parts of the country. Mr. Bessent is bullish about concluding agreements with important trading partners. He wants them ready in time for next year’s Labor Day holiday, September 1.
“We have 18 important trading partners… If we can ink 10 or 12 of the important 18, there are another important 20 relationships, then I think we could have trade wrapped up by Labor Day,” he remarked.
It’s obvious that Trump wants to signal what the tariff rate will be for each country. We understand that he intends to finalize this within the next week and a half. This announcement leaves open the question of possible tariffs that would apply to more than one country including Canada’s.
“We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven-day period.” – Donald Trump
The story is still developing as both governments chart their course through a more dangerous and complicated trade landscape. Continued negotiations with India, Japan, and China could bring major changes to the US-Canada relationship in the years to come. These stakeholders discussions might further shape U.S. relations with non-Trumpian global trading partners.
