President Donald Trump signed an executive order imposing reciprocal tariffs, escalating trade tensions. His administration singled out Canada's digital services tax as a major irritant, calling it unfair. Trump criticized Canada's trade practices and low defense spending, sparking concerns among Canadian businesses.
As President Donald Trump signed an executive order for reciprocal tariffs on Thursday, escalating his trade threats, his administration targeted Canada 's digital services tax as a major irritant. The White House issued a document labeling digital taxes in both Canada and France as 'unfair' for taxing American companies.
Speaking in the Oval Office Thursday afternoon, Trump criticized Canada on trade and singled out its low defense spending, stating the country is 'a very serious contender to be our 51st state.' 'Canada's been very bad for us on trade but now Canada's going to have to start paying up,' he said. 'Canada's going to be a very interesting situation because we just don't need their product.' As Trump continued his attacks on the Canadian economy, businesses watched with growing concern. “The press conference struck me because Canada is clearly still top of mind for him, and that's not a good place to be,” said Matthew Holmes, an executive vice president at the Canadian Chamber of Commerce. “We still have the sword of Damocles hanging over us, and we need to be ever ready for what comes next.” He explained that the constant threats, changing deadlines, and shifting goalposts profoundly undermine business certainty in Canada, impacting everything from major capital investment decisions to individual shipping orders. Holmes believes the reciprocal tariff order is primarily aimed at other markets like Europe, South Korea, Japan, and India. However, the details are scarce, and the broader picture is alarming. “The broader signal it sends is an escalation, a broad proliferation of tariffs ... widening the likelihood of a trade war that's broad, hitting multiple economies,” Holmes said.The Chamber is among many business groups that have repeatedly warned the Trudeau government that its three percent digital services tax, implemented over the summer, would become a major point of contention with the U.S. This controversial policy requires large tech companies to pay tax on revenue generated through engaging online users in Canada. Goldy Hyder, CEO of the Business Council of Canada, stated that the tax 'continued to be an issue' raised in meetings he had this week with senior U.S. officials, congressmen, and business leaders in Washington. 'It is viewed by Americans as an irritant that violates the USMCA in the same way that Canadians believe tariffs violate the agreement,' he said in an emailed statement. The Trudeau government's last budget projected the tax, retroactive for the first few years, would bolster Ottawa's coffers by approximately $5.9 billion over five years. A White House fact sheet described it as unfair, stating that Canada and France 'use these taxes to each collect over $500 million per year from American companies.' Trump's latest executive order states that the U.S. will retaliate against a wide range of trade irritants, including subsidies and 'burdensome regulatory requirements.' It also specifically targets various non-tariff trade barriers, encompassing human and animal health trade requirements, government procurement policies, intellectual property protection, and digital trade barriers. 'This could be a massive overhaul of how tariffs are set,' said William Pellerin, an international trade lawyer at McMillan. He explains that countries typically set their tariff rates under trade agreements and must generally maintain the same tariff levels for all countries, adhering to the 'Most Favored Nation' principle. That is, unless countries enter into additional trade agreements to further lower rates. However, this move would disrupt those established norms, permitting adjustments on a case-by-case basis. This action raises numerous questions regarding its practical implementation, not to mention its potential speed. Implementing Trump's order will initiate the U.S. government into a complex process that Pellerin believes will likely take months to resolve, at the earliest.
TRADE WAR TARIFFS CANADA DONALD TRUMP DIGITAL SERVICES TAX USMCA INTERNATIONAL TRADE
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